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Why? Because people refuse to go deeper into debt: “In an environment where credit is not being used in a material way, the fate of wages matters..” But that still sounds far too much like it’s a voluntary thing. It’s not.

When it comes to U.S. economic growth, wages may never have been this important. The link between earnings and consumer spending has been tighter in this expansion than in any other since records began in the 1960s, according to calculations by Tom Porcelli at RBC Capital Markets. Wages have become even more critical as households, still shaken after being caught with too much debt when the recession hit, remain unwilling or unable to tap home equity or let credit-card balances balloon to buy that new television or dishwasher. By not overextending themselves again, Americans are only spending as much as their incomes will allow, meaning that 70% of the economy is riding on how fast pay rises.

“In an environment where credit is not being used in a material way, the fate of wages matters,” Porcelli said. “They’re doing all of the driving from a consumption perspective.” The correlation between growth in wages and consumer spending adjusted for inflation stands at 0.93 since June 2009, when the recovery began, according to Porcelli. A reading of 1 means they move in the same direction all the time, zero means there is little relationship and minus 1 means they continually diverge. Porcelli tracked wages through the index of aggregate weekly payrolls for private production workers, which takes into account hourly earnings, the length of the workweek and changes in employment for about 80% of the labor force. Records go back to 1964, longer than the measure for all employees that includes supervisors, which dates back only to 2006.

A few weeks back we commented on the rather disturbing news that repeat foreclosures jumped in January: “According to Black Knight Financial, both new and repeat foreclosures hit a 12-month high during the first month of the year with repeats (i.e. the borrower was rescued but has since entered the foreclosure process again) jumping 11% M/M. More troubling is the trend in repeat foreclosures which accounted for only 15% of total foreclosures during the crisis but now make up a startling 51%.” Here’s what the trend looks like:

Now, a new report from Zillow seems to offer further evidence that the US housing market may not be the picture of health after all (as if we needed more proof after housing starts cratered 17% in February). The%age of homeowners underwater in the US was flat from Q3 to Q4 which doesn’t sound all that terrible until you consider that this figure had fallen for 10 consecutive quarters. Things look particularly bad in Florida and the midwest where Zillow notes more than 25% of borrowers are sitting in a negative equity position. Here’s more:

In the fourth quarter of 2014, the U.S. negative equity rate – the%age of all homeowners with a mortgage that are underwater, owing more on their home than it is worth – stood at 16.9%, unchanged from the third quarter. Negative equity had fallen quarter-over-quarter for ten straight quarters, or two-and-a-half years, prior to flattening out between Q3 and Q4 of last year… More than a quarter of mortgaged homes are underwater in some markets in Florida and the Midwest…

Zillow goes on to note that we have entered a new era in the US housing market: the era of the underwater homeowner. Even better, the report goes on to note that in a number of cases, borrowers will likely be “in negative equity forever”:

…this represents a major turning point in the housing market. The days in which rapid and fairly uniform home value appreciation contributed to steep drops in negative equity are behind us, and a new normal has arrived. Negative equity, while it may still fall in fits and spurts, is decidedly here to stay, and will impact the market for years to come.

In fact, some homeowners trapped very deeply underwater may essentially be in negative equity forever. And those homeowners are much more likely to own America’s least expensive homes. Making matters worse, many homeowners in the bottom home value tiers are not only underwater, but very far underwater. Consider, for example, homeowners of the least expensive homes in the Detroit metro area. These homeowners are 29 times more likely to owe twice as much than their house is worth compared to a homeowner at the high end of the market.

The next big threat to oil prices isn’t from OPEC or Bakken shale. It’s Russian samovars, or teapots. Simple refineries that process crude into fuel oil are scaling back, because when oil prices slump, the government reduces the discount that these refiners – known as teapots to those in the industry – get for exporting fuel. They use less crude, freeing it up for sale abroad, which in turn adds to the global glut. Russia may increase oil exports by as much as 250,000 barrels a day this year, according to James Henderson, a senior research fellow at the Oxford Institute for Energy Studies who’s followed the country’s energy industry for more than 20 years. That would equate to 5% growth in shipments, the most in at least a decade.

“The pain Russia is feeling from low oil prices has made more crude available for export,” Henderson said by phone March 18. “Quite a few of Russia’s simple refineries could reduce their runs.” Rising shipments from Russia, which ranks with Saudi Arabia and the U.S. as the world’s biggest oil producers, would put more pressure on crude, already down more than 50% from last year. Falling energy prices and U.S. and European Union sanctions imposed last year in response to the Ukraine crisis have pushed Russia to the brink of recession, damping demand for refined fuel products in the country. Crude loadings from Russian ports are 9.5% higher in the first quarter year over year, according to shipment schedules obtained by Bloomberg.

Teapot refineries processed as much as 800,000 barrels of crude a day last year, Igor Dyomin, a spokesman for Russia’s state-run pipeline operator, Transneft, said by phone March 19. A teapot refinery is one that produces mostly fuel oil rather than more premium fuels, according to Dyomin. Seven simple plants with a combined capacity of 1.2 million barrels a day are most at risk in the current price environment, according to Henderson.

A global oversupply of oil is set to rise as China pauses in the build-up of its strategic reserves and Asian refineries slow crude imports ahead of the spring maintenance season, putting more downward pressure on prices. China’s purchases to fill its strategic petroleum reserves (SPR) had been one of the main drivers of Asian demand since August of last year, with the No.2 oil consumer taking up cheap crude to fill its tanks despite slowing economic growth. Yet China could pause its reserve purchases soon as tank sites reach their limits and new space only becomes available later this year. Little is known about China’s SPR levels.

The government seldom issues data, but its plan is to reach around 600 million barrels, about 90 days’ worth of imports. Most estimates put the SPR stocks currently to be 30-40 days’ worth. “I don’t think there is much (SPR) space left to fill,” a Chinese storage executive said under the condition of anonymity. In the Zhoushan area of Zhejiang province – site of two SPR bases and major commercial storage facilities – tanks are brimming, the executive said. “They are so full that one VLCC tanker owned by a state refiner has had to wait for almost 15 days to discharge,” he said. Adding to downward pressure is the expectation that Chinese refiners could process less crude oil in the second quarter as demand is dented by tax hikes and an economy growing at its slowest in 25 years.

Thomson Reuters data also shows that Asian imports overall have fallen 5% since peaking in December, when China’s purchases hit an all-time high at 7.2 million barrels per day. In India and Japan, crude imports for the most recent month are down 20% and 11% from a year ago, respectively, mainly due to the approach of the spring refinery maintenance season.

The 60 percent plunge in crude oil prices since mid-2014 isn’t just about increased production and slower global growth. Debt may be the four-letter word when it comes to explaining the extent of the energy sector’s collapse, a paper in the Bank for International Settlement’s Quarterly Review shows. While production has certainly increased and consumption cooled, current estimates of both are little changed from previous forecasts. This stands in contrast to the last two periods of similar oil-price declines in 1996 and 2008, which were attributed to big reductions in demand and/or a surge in production, according to the paper.nThis time, low borrowing costs, a product of easy Federal Reserve monetary policy, are a new wrinkle.

Cheap financing has made it easier for exploration and production (E&P) companies to finance operations and expand rapidly as the era of hydraulic fracturing kicked into high gear. Debt in the global oil and gas industry reached $2.5 trillion in 2014, 2 1/2 times what it was eight years earlier, according to the BIS paper. Just as fracking helped production soar in America’s oil fields, the debt boom is now magnifying the slump in prices as E&Ps boost current and future sales of crude to make sure they can fulfill their debt obligations. The direct effect on the economy is a sharp cutback in capital spending plans, already evidenced by plummeting rig counts.

At the same time, production continues to march higher. Deteriorating balance sheets encourage companies to keep pumping from existing wells even as the value of the assets (the oil) backing those securities declines. That explains the blowout in spreads between high-yield energy bonds and risk-free counterparts. “A sell-off of oil company debt could spill over to corporate bond markets more broadly if investors try to reduce the riskiness of their portfolios,” the BIS authors write. “The fact that debt of oil and gas firms represents a substantial portion of future redemptions underlines the potential system-wide relevance of developments in the sector.”

Greece’s unbalanced austerity and drastic increase of poverty. The poorest households in the debt-ridden country lost nearly 86% of their income, while the richest lost only 17-20%. The tax burden on the poor increased by 337% while the burden on upper-income classes increased by only 9% !!! This is the result of a study that has analyzed 260.000 tax and income data from the years 2008 – 2012.

According to the study commissioned by the German Institute for Macroeconomic Research (IMK) affiliated with the Hans Böckler Foundation:
– The nominal gross income of Greek households decreased by almost a quarter in only four years.
– The wages cuts caused nearly half of the decline.
– The net income fell further by almost 9%, because the tax burden was significantly increased
– While all social classes suffered income losses due to cuts, tax increases and the economic crisis, particularly strongly affected were households of low- and middle-income. This was due to sharp increase in unemployment and tax increases, that were partially regressive.
– The total number of employees in the private sector suffered significantly greater loss of income, and they were more likely to be unemployed than those employed in the public sector.
-From 2009 to 2013 wages and salaries in the private sector declined in several stages at around 19%. Among other things, because the minimum wage was lowered and collective bargaining structures were weakened. Employees in the public sector lost around a quarter of their income.

Any sensible person can see how a certain video[1] has become part of something beyond a gesture. It has sparked off a kerfuffle reflecting the manner in which the 2008 banking crisis began to undermine Europe’s badly designed monetary union, turning proud nations against each other. When, in early 2010, the Greek state lost its capacity to service its debts to French, German and Greek banks, I campaigned against the Greek government’s quest for an enormous new loan from Europe’s taxpayers. Why?

I opposed the 2010 and 2012 ‘bailout’ loans from German and other European taxpayers because:
• the new loans represented not a bailout for Greece but a cynical transfer of losses from the books of the private banks to the weak shoulders of the weakest of Greek citizens. (How many of Europe’s taxpayers, who footed these loans, know that more than 90% of the €240 billion borrowed by Greece went to financial institutions, not to the Greek state or its citizens?)
• it was obvious that, at a time Greece could not repay its existing loans, the austerity conditions for giving Greece the new loans would crush Greek nominal incomes, making our debt even less sustainable
• the ‘bailout’ burden would, sooner or later, weigh down German and other European taxpayers once the weaker Greeks buckled under their mountainous debts (as moneyed Greeks had already shifted their deposits to Frankfurt, London etc.)
• misleading peoples and Parliaments by presenting a bank bailout as an act of ‘solidarity to Greece’ would turn Germans against Greeks, Greeks against Germans and, eventually, Europe against itself.
In 2010 Greece owed not one euro to German taxpayers. We had no right to borrow from them, or from other European taxpayers, while our public debt was unsustainable. Period!

That was my ‘controversial’ point in 2010: In 2010, Greece should have borrowed not one euro before entering into debt restructuring procedures and partially defaulting to its private sector creditors. Well before the May 2010 ‘bailout’, I urged European citizens to tell their governments not to even think of transferring private losses to them. To no avail, of course. That transfer was effected soon after[2] with the largest taxpayer-backed loan in economic history given to the Greek state on austerity conditions that have caused Greeks to lose a quarter of their income, making it impossible to repay private and public debts, and causing a hideous humanitarian crisis. That was then, in 2010. What should we do now, in 2015, that Greece remains in crisis and our people, the Greeks and the Germans, have, regrettably but also predictably, descended into a mutual ‘blame game’?

First, we should work towards ending the toxic ‘blame game’ and the moralising finger-pointing which benefit only the enemies of Europe. Secondly, we need to focus on our joint interest: On how to grow and to reform Greece rapidly, so that the Greek state can best repay debts it should never have taken on while looking after its citizens as a modern European state ought to do. In practical terms, the 20th February Eurogroup agreement offers an excellent opportunity to move forward. Let us implement it immediately, as our leaders have urged in yesterday’s informal Brussels meeting. Looking ahead, and beyond current tensions, our joint task is to re-design Europe so that Germans and Greeks, along with all Europeans, can re-imagine our monetary union as a realm of shared prosperity.

“Greece was not asked, so the claims have not gone away.” “The German government’s argument is thin and contestable. It is not permissible to agree to a treaty at the expense of a third party, in this case Greece..”

A growing number of legal experts are supporting Greece’s demands over the German war reparations from the country’s brutal Nazi occupation during World War II. Despite the official German refusal to address the issue, legal experts say now Athens has ground for the case. The hot issue is expected to be brought up by Greece’s newly elected Prime Minister Alexis Tsipras during his official visit to Berlin on Monday, where he is scheduled to hold a meeting with the German Chancellor Angela Merkel. The tension between the two countries have recently rose to unexpected levels and a series of events with the Finance Ministers of Greece and Germany, Yanis Varoufakis and Wolfgang Schaeuble respectively, and the war reparations issue — mainly by the Greek side — has significantly affected the already negative climate.

The Greek leftist-led coalition government has repeatedly raised the issue causing Germany’s firm reaction as expressed by German Finance Minister Wolfgang Schaeuble, who recently warned Athens to forget the war reparations, underlining that the issue has been settled decades ago. Central to Germany’s argument is that 115 million deutschemarks have been paid to Greece in the 1960s, while similar deals were made with other European countries that suffered a Nazi occupation. At the same time, though, lawyers from Germany and other countries have said the issue is not wrapped up, as Germany never agreed a universal deal to clear up reparations after its unconditional surrender.

The German answer on that is that in 1990, before its reunification, the “Two plus Four Treaty” agreement was signed with the United Kingdom, the United States, the former Soviet Union and France, which renounced all future claims. According to Berlin, this agreement settles the issue for other states too. “The German government’s argument is thin and contestable. It is not permissible to agree to a treaty at the expense of a third party, in this case Greece,” international law specialist Andreas Fischer-Lescano said, as cited by the Reuters. Mr. Lescano’s opinion finds several other experts in agreement. One of them, the Greek lawyer Anestis Nessou, who works in Germany highlighted that “there is a lot of room for interpretation. Greece was not asked, so the claims have not gone away.”

It is no secret that banks in Greece have been losing deposits in recent months. The question that is somewhat open, though, is where Greeks have been moving their deposits to. Have they been transferring the cash to other banks, or have they been squirreling it away under the mattress—and under bathroom tiles? At first glance, data from the Bank of Greece seem to point to the deposit transfer option rather than the cash-under-mattress option as the “banknotes in circulation” line item on its balance sheet hasn’t shown any big spike in recent months. This, however, does not tell the full story. The banknotes in circulation item on the Bank of Greece balance sheet only shows the amount of cash Greece has been allocated under its share of overall euro-area banknote circulation.

Any extra cash needs of the Greek economy are accounted for elsewhere on the Bank of Greece balance sheet under the rather drab headline of “net liabilities related to the allocation of euro banknotes within the Eurosystem.” This extra cash was zero before the start of the Greek crisis in 2009, climbed above €22 billion in the months leading to the 2012 Greek political crisis, and had been falling steadily since. Until December of last year, that is, when the Greek political crisis reemerged following the collapse of the Samaras administration. We can now clearly see there has been a €10 billion increase in cash in Greece in the three months to the end of February 2015. That is a lot of mattresses.

Greece’s eurozone creditors are considering bringing forward a financial lifeline for Athens by a few weeks after Alexis Tsipras, the Greek prime minister, told EU leaders the country would be insolvent by the end of April without assistance. In a key three-hour meeting in Brussels that ended in the early hours of Friday, Tsipras informed his creditors if they wait until the end of April before releasing funds, it will be too late for Greece. According to an account of that meeting policymakers are now discussing whether they can supply emergency funding earlier than previously agreed. Tsipras was also advised to treat the Eurocrats working in Athens with more respect and ensure their safety. Under the terms of an agreement on Greece’s bailout last month, some €7.2bn in rescue funds were not to be disbursed until the end of April and only on condition that Tsipras’s left-wing government had persuasively shown it was committed to enforcing austerity in the country.

Chancellor Angela Merkel of Germany concluded a two-day EU summit in Brussels on Friday by stressing Tsipras had to present a “comprehensive” reform package urgently and this would need to be endorsed by the Eurogroup of finance ministers before Greece could access any of the funds. Merkel’s remarks came after the crucial meeting, that ran until 2am on Friday, when Tsipras came face-to-face for the first time with the leaders of his key creditors – Merkel and Mario Draghi, the president of the European Central Bank. The other five present at the crisis talks were the French president, François Hollande; the presidents of the European Commission and Council, Jean-Claude Juncker and Donald Tusk; Jeroen Dijsselbloem, head of the committee of eurozone finance ministers; and Uwe Corsepius, a senior eurocrat who has just been appointed Merkel’s EU adviser.

Tsipras had requested the meeting and had been confrontational in the days preceding it. According to an authoritative account of what took place, he started the negotiations by making it clear he expected urgently needed bailout funds released without giving very much in return. According to the account, he was disabused of that notion within 10 minutes and the meeting then ran smoothly, except for an episode where the new Greek leader was upbraided by Draghi, who is furious at the way senior EU officials monitoring the terms of the Greek bailout are being treated in Athens. According to senior officials in Brussels, the Tsipras government has been orchestrating a campaign of intimidation against the eurocrats in Athens, frustrating their work and refusing all access.

Visiting Athens this week, they were confined to a luxury hotel and denied access to government ministries. Their whereabouts were leaked to the media and “aggressive” demonstrations were staged outside the hotel. One of the top officials needed two bodyguards. Draghi was said to have read Tsipras the riot act, while the others demanded cooperation with the creditors. Merkel was said to have soothed things by telling Tsipras that, when International Monetary Fund officials go to Berlin, they are granted access to everything they need, even when it is a little humiliating.

The European Commission has made $2 billion of unused funds available to Greece to help the country avert a cash crunch, EC head Jean-Claude Juncker says. The offer was made a day after crisis talks between Greece’s new Prime Minister Alexis Tsipras and European leaders on Greece’s EU-IMF bailout. Greek authorities said on Friday they were gradually moving towards meeting the requirements of international creditors on a more detailed reform plan, after Prime Minister Tsipras said his coalition would intensify work to avert the country’s bankruptcy. Austerity policies have been the focus of a standoff between Greece and its troika of creditors.

Promises to end the era of drastic cuts helped Tsipras win power two months ago, but since then his stance has weakened. Greece’s western creditors have been insisting the country needs to reform its economy and start cutting its own expenses, if it wants to get new money for its ailing economy. Austerity policies have been the focus of a standoff between Greece and its Troika of creditors. Promises to end the era of drastic cuts helped Tsipras win power two months ago, but since then his stance has weakened. Greece’s western creditors have been insisting the country needs to reform its economy and start cutting its own expenses, if it wants to get new money for its ailing economy.

The Troika of creditors said in February they were ready to extend the current bailout program until June 2015, but a general agreement hasn’t been reached yet. Tsipras has sharply criticized the Troika methods calling them arm-twisting. He blames them for his country’s unprecedented recession. Greece received two bailouts from the EU in 2010 and 2014 totaling €240 billion. Having taken on austerity measures, Greece saw its economy losing a quarter of its value, with a third of Greeks living below the poverty line and unemployment exceeding 30%. Experts say the money Greece has now will only last till the end of March.

The EU watchdog has accused the union’s bank of flouting its own transparency rules and hiding what it knows about allegations of tax avoidance by a Zambian mining firm largely owned by the Swiss commodity trader Glencore. On Tuesday, Emily O’Reilly, the European ombudsman, said she was not satisfied with the European Investment Bank’s claims that, despite an internal investigation, it had been unable to establish whether Mopani Copper Mines had avoided paying local tax running into tens of millions. Ten years ago, the EIB – which is owned by EU member states – loaned Mopani $50m (£30m) for the renovation of a smelter to reduce sulphur dioxide emissions.

Six years later, after a leaked audit report suggested that Mopani had avoided paying tens of millions of dollars in local tax, the bank announced an investigation into the company. It also halted loans to Glencore because of “serious concerns” about its corporate governance. Glencore has always denied the allegations, which it maintains are based on “fundamental factual errors”. Mopani repaid the EIB loan in full in 2012.

After the EIB refused to release the findings of its investigation, the charity Christian Aid referred the bank to the European ombudsman, who was granted access to the internal report. In her ruling, O’Reilly disputed the bank’s assertion that “it was not possible to comprehensively prove or disprove the allegations” made in the leaked audit report. She said: “The ombudsman considers that this statement does not adequately reflect the information contained in the [EIB] investigation report on this issue.”

Japan’s public pension funds, which include the world’s biggest, accelerated their push to dump local bonds and invest the money abroad to a record pace. The $1.1 trillion Government Pension Investment Fund and its smaller peers almost doubled net sales of Japanese government bonds to 5.56 trillion yen ($46 billion) in the fourth quarter, the most in Bank of Japan figures dating back to 1998. They bought an unprecedented 2.39 trillion yen of foreign stocks and bonds. Selling of JGBs and buying of overseas securities has continued for six straight quarters.

GPIF posted its largest investment gain in almost two years last quarter after shifting more money into stocks from Japanese bonds, as it came under government pressure to boost returns to cover payouts for the world’s fastest-aging population. The Federation of National Public Service Personnel Mutual Aid Associations, last month said it will boost its investments in foreign stocks and bonds and cut exposure to domestic debt, matching the plan by GPIF. “It seems like three other civil service funds have yet to move,” Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan, said referring to data from the BOJ and and GPIF. “That means there is still some room left for the shift to take place.”

Japan’s public pension funds raised domestic stock holdings for a fifth quarter, adding a net 1.73 trillion yen, the most since 2009. They held 5.6% of a record 1.023 quadrillion yen of outstanding JGBs at the end of December. The biggest holder, the BOJ, owned 25% of the total as of then, it said Wednesday in Tokyo. GPIF hired four external managers of domestic and overseas stocks as it moves to boost equities to half its assets. It made a 5.2% return in the fourth quarter, the most since the period ended March 2013, according to a statement last month. Domestic shares returned 6.2% in the quarter, while local debt returned 1.9%. Foreign bonds returned 9.4%, and overseas stocks gained 10%.

The biggest issue facing the finacial system today is the US Dollar rally. The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as big as ALL of the money printing that occurred between 2009 and 2013. And it’s imploding as we write this. Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally bigger than the economies of Germany and Japan COMBINED. When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

And the US Dollar has been rallying… HARD. Indeed, the move that began in July 2014 is already larger par in scope with that which occurred during the 2008 meltdown. Moreover, this move has occurred with little to no rest. The US Dollar barely corrected 2% after rallying a stunning 16+% in a matter of months before beginning its next leg up. You only get these sorts of moves when the stuff hits the fan. CNBC and the others are babbling about the Fed’s FOMC changes, but all of that is just a distraction from the fact that a $9+ trillion carry trade, arguably the largest carry trade in history, has begun to blow up. Rate hikes, QE, all of this stuff is minor in comparison to the carnage the US Dollar is having on the financial system. Take a look at the impact it’s having on emerging market currencies.

The Obama administration issued the first federal regulations for fracking since the drilling technique fueled a domestic energy boom, requiring extensive disclosures of the chemicals used on public land. After years of debate and delay, the Bureau of Land Management on Friday said drillers on federal lands must reveal the chemicals they use, meet well construction standards and safely dispose of contaminated water used in fracking. The rule had been highly anticipated by drillers, who oppose added regulation, and by environmentalists who have raised alarms about water contamination. Both sides had complaints with the outcome: groups representing the oil and gas industry sued to block its implementation and an environmental group said the regulation favored industry over public health.

“This rule will move our nation forward as we ensure responsible development while protecting public land resources,” Interior Secretary Sally Jewell said on a call with reporters. “As we continue to offer millions of acres of America’s public lands – your lands – for oil and gas development, it is critical that the public has confidence that robust safety and environmental protections are in place.” Domestic production from more than 100,000 wells on public lands accounts for about 11% of U.S. natural-gas production and 5% of oil production. Fracking, or hydraulic fracturing, is a technique in which water, chemicals and sand are shot underground to free oil or gas from rock. It is used for about 90% of the wells on federal lands.

The rule, which is set to take effect in three months, triggered criticism from environmental groups, which said the regulations put industry interests ahead of public health, and from congressional Republicans the oil and gas industry. The Independent Petroleum Association of America and the Western Energy Alliance filed a lawsuit against the Interior Department, saying the regulations are the product of “unsubstantiated concerns,” and lack evidence necessary to sustain them. The group asked in a lawsuit filed Friday in a U.S. court in Wyoming to have the new rules declared invalid.

The Republic of Ukraine has sent out a request for proposals (RFP) to banks for a new US government-guaranteed bond, according to three sources. This is the second time the US government has thrown its financial backing behind a Ukrainian international bond issue. In May 2014, the US guaranteed a US$1bn Ukrainian bond maturing in 2019 through the US Agency for International Development. That bond was given a credit rating in line with the US sovereign at Aaa by Moody’s, AA+ by Standard & Poor’s and AAA by Fitch. This is a far cry from Ukraine’s credit rating, which stands at Caa3, CCC and CC with the same three agencies.

The RFP comes just over a week after Ukraine agreed a new four-year US$17.5bn bailout facility with the IMF. As part of the IMF agreement several institutions – including the EU, World Bank and US – have agreed to provide around US$7.5bn between them, according to analyst estimates, to the war torn country. It is not clear whether the US-backed bond forms part of the US contribution. Meanwhile, Ukraine is obligated under the IMF agreement to restructure at least US$15.3bn of outstanding debt. Ukraine’s finance minister Natalia Yaresko confirmed during an investor call last week that bondholders will see haircuts to principal, as well as maturity extensions and changes to interest payment.

Russia, which holds US$3bn of Ukrainian debt that comes due in December this year, will not be exempt from the cuts, Yaresko said. A clause in the debt owed to Russia allows it to accelerate bond payments if Ukraine’s debt-to-GDP ratio breaches 60% – a number that has been passed largely because Ukraine’s industrial power centre Donbass has ground to a halt under sustained conflict. Russia has repeatedly said that it would not accelerate the debt.

German Vice Chancellor Sigmar Gabriel (above) said this week in Homburg that the U.S. government threatened to cease sharing intelligence with Germany if Berlin offered asylum to NSA whistleblower Edward Snowden or otherwise arranged for him to travel to that country. “They told us they would stop notifying us of plots and other intelligence matters,” Gabriel said. The vice chancellor delivered a speech in which he praised the journalists who worked on the Snowden archive, and then lamented the fact that Snowden was forced to seek refuge in “Vladimir Putin’s autocratic Russia” because no other nation was willing and able to protect him from threats of imprisonment by the U.S. government (I was present at the event to receive an award).

That prompted an audience member to interrupt his speech and yell out: “Why don’t you bring him to Germany, then?” There has been a sustained debate in Germany over whether to grant asylum to Snowden, and a major controversy arose last year when a Parliamentary Committee investigating NSA spying divided as to whether to bring Snowden to testify in person, and then narrowly refused at the behest of the Merkel government. In response to the audience interruption, Gabriel claimed that Germany would be legally obligated to extradite Snowden to the U.S. if he were on German soil.

Afterward, however, when I pressed the vice chancellor (who is also head of the Social Democratic Party, as well as the country’s economy and energy minister) as to why the German government could not and would not offer Snowden asylum — which, under international law, negates the asylee’s status as a fugitive — he told me that the U.S. government had aggressively threatened the Germans that if they did so, they would be “cut off” from all intelligence sharing. That would mean, if the threat were carried out, that the Americans would literally allow the German population to remain vulnerable to a brewing attack discovered by the Americans by withholding that information from their government.

The Tulsa World newspaper recently reran a heated Washington Post editorial headlined: “Sen. Jim Inhofe embarrasses GOP and U.S.” The Senate’s top climate-science denier’s snowball throwing stunt in the Senate chambers was more offensive to his Senate colleagues and the liberal media than his official denier’s bible he wrote calling it “The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future.” But what if Oklahoma Sen. Inhofe is right? What if “God really is in charge” of the global warming mess? And what if “humans cannot change climate,” as he warns America? Get it? Humans cannot reverse the climate damage. The biggest “hoax is that there are some people who are so arrogant to think that they are so powerful.”

But humans can’t change climate. Humans are powerless to change it, not RiskyBusiness.org nor 350.org, not Big Oil nor the GOP. And if God is in solely responsible, humans are just bit players in a grand drama, but can’t affect the outcome one way or another, either accelerating it or halting it. And no matter what capitalists or environmentalists do, or plan, or legislate, or oppose, or spend, God’s plan is “The Plan,” and we may just make matters worse, and waste a lot of money … $60 trillion. Economic shocker. A ScientificAmerican team did a research study on the cost of fixing the global warming and climate-change problem. Bottom line: $60 trillion. That’s one helluva price tag. A whopping $60 trillion on our planet – where the total global GDP is only $75 trillion.

And if it’s really God’s plan, does He also pay the bill? Now add this to the economic equation: Is Inhofe speaking for God? He’s hardly neutral, a huge chunk of Oklahoma’s state revenue is generated by Big Oil. And he’s received well over a million bucks in campaign donations from fossil-fuel interests. Worse, no states, nations nor businesses, nobody has a master plan for dealing with climate change … yes, lots of conflicting, piecemeal technologies … but no tested, reliable grand solution … no guarantees anything will work.

Monsanto’s best-selling weedkiller Roundup probably causes cancer, the World Health Organization said in a report that’s at odds with prior findings. Roundup is the market name for the chemical glyphosate. A report published by the WHO in the journal Lancet Oncology said Friday there is limited evidence that the weedkiller can cause non-Hodgkin’s lymphoma and lung cancer and convincing evidence it can cause cancer in lab animals. The report was posted on the website of the International Agency for Research on Cancer, or IARC, the Lyon, France-based arm of the WHO. Monsanto, which invented glyphosate in 1974, made its herbicide the world s most popular with the mid-1990s introduction of crops such as corn and soybeans that are genetically engineered to survive it.

The WHO didn t examine any new data and its findings are inconsistent with assessments from the U.S., EU and elsewhere, Monsanto said. We don t know how IARC could reach a conclusion that is such a dramatic departure from the conclusion reached by all regulatory agencies around the globe, Philip Miller, Monsanto vice president for global regulatory affairs, said in a statement. The evidence in humans is from studies of exposures, mostly agricultural, in the USA, Canada, and Sweden published since 2001, the WHO said in the report. In addition, there is convincing evidence that glyphosate also can cause cancer in laboratory animals. The WHO said exposure by the general population is generally low.

In 2012 Valentin Gruener rescued a young lion cub and raised it himself at a wildlife park in Botswana. It was the start of an extraordinary relationship. Now an astonishing scene is repeated each time they meet – the young lion leaps on Gruener and holds him in an affectionate embrace. “Since the lion arrived, which is three years now, I haven’t really left the camp,” says Gruener. “Sometimes for one night I go into the town here to organise something for the business, but other than that I’ve been here with the lion.” The lion he has devoted himself to is Sirga – a female cub he rescued from a holding pen established by a farmer who was fed up of shooting animals that preyed on his cattle. “The lions had killed the other two or three cubs inside the cage, and the mother abandoned the remaining cub. She was very tiny, maybe 10 days old,” Gruener says.

The farmer, Willy de Graaf, asked Gruener to try to save her and so he took her to a wildlife park financed by de Graaf and became her adoptive mother, “feeding her and taking care of her”. “You have this tiny cute animal sitting there and it’s already quite feisty,” he says. “It will become about 10 times that size and you will have to deal with it.” She’s much bigger now, but when Gruener opens her cage she still rushes to greet him – ecstatically throwing her paws around his neck. “That happens every time I open the door. It is an amazing thing every time it happens, and it’s such a passionate thing to do for this animal to jump and give me a hug,” says Gruener. “But I guess it makes sense. At the moment she has no other lions with her in the cage and I guess for her I’m like her species. So I’m the only friend she’s got. Lions are social cats so she’s always happy to see me.”

The financial debacle that has befallen Russia as the price of Brent crude dropped 50% in the last four months has overshadowed the one that potentially awaits the U.S. shale industry in 2015. It’s time to heed it, because Saudi Arabia and other major Middle Eastern oil producers are unlikely to blink and cut output, and the price is now approaching a level where U.S. production will begin shutting down. Representatives of the leading OPEC countries have been saying for weeks they would not pump less oil no matter how low its price goes. Saudi Oil Minister Ali Al-Naimi has said even $20 per barrel wouldn’t trigger a change of heart. Initial reactions in the U.S. were confident: U.S. oil producers were resilient enough; they would keep producing even at very low sale prices because the marginal cost of pumping from existing wells was even lower; OPEC would lose because its members’ social safety nets depends on the oil price; and anyway, OPEC was dead.

That optimism was reminiscent of the cavalier Russian reaction at the beginning of the price slide: In October, Russian President Vladimir Putin said “none of the serious players” was interested in an oil price below $80. This complacency has taken Russia to the brink: On Friday, Fitch downgraded its credit rating to a notch above junk, and it’ll probably go lower as the ruble continues to devalue in line with the oil slump. It’s generally a bad idea to act cocky in a price war. By definition, everybody is going to get hurt, and any victory can only be relative. The winner is he who can take the most pain. My tentative bet so far is on the Saudis – and, though it might seem counterintuitive, the Russians. For now, the only sign that U.S. crude oil production may shrink is the falling number of operational oil rigs in the U.S. It was down to 1750 last week, 61 less than the week before and four less than a year ago.

Oil output, however, is still at a record level. In the week that ended on Jan. 2, when the number of rigs also dropped, it reached 9.13 million barrels a day, more than ever before. Oil companies are only stopping production at their worst wells, which only produce a few barrels a day – at current prices, those wells aren’t worth the lease payments on the equipment. All this will eventually have an impact. According to a fresh analysis by Wood Mackenzie, “a Brent price of $40 a barrel or below would see producers shutting-in production at a level where there is a significant reduction in global oil supply. At $40 Brent, 1.5 million barrels per day is cash negative with the largest contribution coming from several oil sands projects in Canada, followed by the U.S.A. and then Colombia.”

That doesn’t mean that once Brent hits $40 – and that is the level Goldman Sachs now expects, after giving up on its forecast that OPEC would blink – shale production will automatically drop by 1.5 million barrels per day. Many U.S. frackers will keep pumping at a loss because they have debts to service: about $200 billion in total debt, comparable to the financing needs of Russia’s state energy companies. The problem for U.S. frackers is that it’s impossible to refinance those debts if you’re bleeding cash. At some point, if prices stay low, the most leveraged of the companies will go belly up, and the more successful ones won’t be able to take them over because they will have neither the cash nor the investor confidence that would help them secure debt financing.

Oil extended losses to trade below $45 a barrel since amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years. Futures fell as much as 2.6% in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of OPEC, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50% last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs said crude needs to drop to $40 a barrel to “re-balance” the market, while SocGen also reduced its price forecasts. “There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

Oil and natural gas are sliding again to multi-year lows, and once again it is having an influence on stocks.What’s important is to understand the outsized influence this near-daily drop in oil (six months and running!) is having on corporate earnings. Even though the energy sector is only roughly 8% of the market capitalization of the S&P 500, the decline in earnings in that sector has been so dramatic that it is affecting earnings estimate for the entire S&P 500. On December 1st, analyst anticipated that Energy earnings for Q1 2015 would decline 13.8% compared to Q1 2014, according to S&P Capital IQ. As of Monday, analysts expect Energy earnings for Q1 2015 to decline 41.0%. Think about that: in 5 weeks, earnings expectations for the entire Energy group have gone from down 13.8% to down 41.0%.

That is the biggest drop in earnings for any sector since the bank stocks collapsed in Q4 2008. What does this mean for earnings for the overall S&P 500? On December 1, analysts were expecting Q1 earnings for the entire S&P 500 to be up 8.6%. As of Monday, they’re expecting earnings to be up only 4.6%. From up 8.6% to up 4.6%. That is a drop of 4 percentage points in just 5 weeks. That is a lot, and most of it is due to the decline in Energy. Here’s another way to look at it: Q1 earnings for the Energy sector were cut by $7.7 billion from December 1 through today. The S&P 500 as a whole saw a cut of $9.1 billion during the same period. So Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment? If oil keeps dropping, estimates will be lowered even more.

Crashing oil prices will hurt housing demand in key Texas markets this year, shaving profits for national builders, according to a Monday analyst note. As energy companies cut spending on jobs and exploration-and-production projects because of tumbling oil, U.S.home builders will see housing demand drop, RBC Capital Markets analysts wrote. The slump will lead builders to start 5% fewer single-family homes this year in the Lone Star State, according to RBC analysts, who lowered earnings estimates for the country’s top home-construction companies. “We believe that this assumption fairly balances the effect of a decline in oil production on state employment levels with our view that improved productivity should limit vast swings in production-related employment,” according to RBC analysts. Under one scenario, Texas housing starts could fall by as much as 10%, RBC added.

“We expect that layoffs and the ripple effect on support services will have a decidedly negative impact on housing demand in Texas,” RBC analysts wrote. While Texas is just one state, here’s why real estate trends there could hit national builders’ earnings. Texas markets, led by Houston, Dallas and Austin, make up about 16% of total U.S. home-construction plans among builders. That’s true for both single-family and multi-family home-building permits, data show. When it comes to real estate, oil’s impact won’t be limited this year to new-home building. Dropping energy prices are also expected to hit home-price appreciation. The shock from dropping oil may take some time to show up in companies’ earnings. Later this week, KB Home and Lennar, two of the country’s largest home builders, could both report fourth-quarter earnings that at least meet Wall Street consensus estimates. But forward-looking investors should listen specifically to executives’ comments about how the energy crash is hitting housing demand in Texas.

It seems like every day some pundit is on air arguing that falling oil is a net long-term positive for the U.S. economy. The cheaper energy gets, the more consumers have to spend elsewhere, serving as a tax cut for the average American. There is a lot of logic to that, assuming that oil’s price movement is not indicative of a major breakdown in economic and growth expectations. What’s not to love about cheap oil? The problem with this argument, of course, is that it assumes follow through to end users. If oil gets cheaper but is not fully reflected in the price of goods, the consumer does not benefit, or at least only partially does and less so than one might otherwise think. I believe this is a nuance not fully understood by those making the bull argument. Falling oil may actually be a precursor to higher volatility as investors begin to question speed’s message.

Given the extent of which oil has fallen, one would think that consumer-sensitive stocks would be skyrocketing. Cheaper oil should mean more demand for stuff sold around the country. Indeed, retail stocks have been strong, but the magnitude of their outperformance is no where near as significant as it should be. Take a look below at the price ratio of the SPDR S&P Retail Index relative to the S&P 500. As at reminder, a rising price ratio means the numerator/XRT is outperforming (up more/down less) the denominator/SPY. Note that the ratio is still below it’s 2013 peak, and that while the trend is up, the speed is not an inverse crash of oil.

Maybe this is because wage growth is faltering and that is offsetting oil’s decline, or maybe it’s because oil is a signal of some kind of economic slowdown ahead. Regardless, oil is revealing the truth about the current state of markets, as junk debt falters, long-duration Treasurys counter Fed hope for reflation, and defensive sectors actually act as defense as opposed to offense starting 2015. Our alternative inflation rotation and equity-beta rotation mutual funds and separate accounts are positioned in the near term in their respective defensive positions given our quantitative models. If oil’s crash isn’t enough to cause consumer stocks to skyrocket, one needs to indeed question the narrative against inter-market movement. I welcome volatility, which is not fear, but rather doubt about current prices relative to changing growth and inflation expectations. Truth be told.

The United Arab Emirates will stick with a plan to increase oil-production capacity to 3.5 million barrels a day in 2017 even as an oversupply pushed prices to the lowest in more than five years. “In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals,” Energy Minister Suhail Al Mazrouei said in a presentation in Abu Dhabi yesterday. “Our investments remain there.”

Oil fell to the lowest level since March 2009 yesterday after Goldman Sachs and Societe Generale cut their price forecasts. Venezuela called on OPEC producers to work together to lift prices back toward $100 a barrel. The U.A.E., the fifth-largest OPEC member, produced 2.7 million barrels a day last month and has a current capacity of 3 million barrels a day, according to data compiled by Bloomberg. Oil slumped almost 50% last year, the most since the 2008 financial crisis, amid a supply surplus estimated by Qatar at 2 million barrels a day. OPEC is battling a U.S. shale boom by resisting production cuts, signaling it’s prepared to let prices fall to a level that slows American output, which has surged to a three-decade high.

The ‘rosy scenario’ of so-called recovery in US manufacturing is a hyped media myth, and is more fiction than reality. A new study says it offers a dangerous sense of complacency to business and the public, as America faces a $458 billion trade deficit. “A lot of people are desperate for positive economic news, so articles suggesting that there’s a revival of manufacturing get a lot of traction,” Adams Nager and Robert Atkinson, from the Information Technology & Innovation Foundation, said in Monday’s report.The Washington DC-based think tank is non-partisan and not for profit, according to the group’s website. The authors claim that many reports “torture the data” by masking the decline in manufacturing output between 2007 and 2013 in order to claim a miraculous ‘recovery’.

Though employment and output are both growing, they are not at a fast enough rate to declare a US manufacturing renaissance, the report says. “Much of the growth since the recession’s lows was just a cyclical recovery instead of real structural growth that will improve long-term conditions, and there is a strong possibility that manufacturing will once again decline once domestic demand recovers,” it says. American manufacturing has lost over a million jobs net and over 15,000 manufacturers since the beginning the recession, which took hold in 2008. Based on these numbers, the US only added one new manufacturing job for every five that were lost. “It’s true that we’ve had four straight years of growth, and that we’ve added 520,000 jobs in manufacturing in the last three years,” says Nager.

But that compares to 2.5 million jobs lost between 2007 and 2009. These figures can be accounted for due to the big turnaround in the automobile industry. The study focuses on hard numbers instead of anecdotal evidence, outlining five main myths of the US manufacturing narrative, including rising Chinese wages and the gas shale revolution, “We have stretched six cool examples [of the rebirth of manufacturing] into a whole news trend,” the authors of the report wrote. By the end of 2013, real manufacturing value added was still 3.2% below 2007 levels, even though GDP grew 5.6%. The study argues that the best measure of the health of US manufacturing is real value added. “In short, it is unwise to assume that US manufacturing will continue to rebound without significant changes in national policy,” the authors conclude in warning.

The bigger wage gains that have so far eluded American workers probably will begin to materialize this year as the job market tightens, according to economists polled by Bloomberg. Hourly earnings for employees on company payrolls will advance 2% to 3% on average, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7% in the year through December. While still short of the 3% to 4% increases Federal Reserve Chair Janet Yellen has said she considers “normal” with 2% inflation, it would be another sign that the labor market is making headway. A jobless rate that’s quickly approaching the range policy makers say is consistent with full employment will mean employers will need to pay up to attract and keep talent.

“By mid-year we should start to see more meaningful wage gains,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, whose firm projects wage growth just below 3% this year. “We’re absorbing a lot of this slack quickly.” Wages were one disappointing element in an otherwise brightening jobs market last year. Employers added an average 246,000 workers a month to payrolls, the best performance since 1999. The jobless rate sank to 5.6% in December, the lowest since June 2008 and just shy of the 5.2% to 5.5% that the Fed has defined as full employment.

Britain’s retailers have suffered their toughest Christmas since the financial crisis struck, according to industry figures that showed sharp discounting continuing to take its toll. Capping a tough year on the high street, the value of December sales dropped by 0.4% on a year earlier in like-for-like terms, according to the British Retail Consortium (BRC) – the worst December performance since 2008, when sales had tumbled 3.3% in the aftermath of Lehman Brothers collapse. However, the trade group noted that food sales picked up in December, rising for the first time since April. There was also some support for non-food items in end-of-season sales. The figures came after mixed trading reports so far for the industry’s most crucial month. Marks & Spencer has admitted to a dismal Christmas, while Next and John Lewis saw strong sales. Debenhams and Morrisons update investors on Tuesday.

The BRC director general, Helen Dickinson, talked about a “positive performance” overall in December. “It’s clear that targeted discounting has worked for the UK’s retailers – prices have been cut just enough to encourage customers through the doors, but not so much that sales growth has been completely choked off,” she said. The BRC-KPMG retail sales monitor showed there was a 1% rise in total sales, which are not adjusted to strip out the effect of changes in floor space as shops open and close. That was also the weakest December performance since 2008. David McCorquodale, head of retail at the report’s co-authors, KPMG, highlighted the growing role discounting has played in the runup to Christmas. He said the US-inspired Black Friday of flash sales was followed by a “challenging lull in spending” as consumers waited for future bargains. “This difficult stop/start sales environment has been undoubtedly challenging, but most retailers have managed to achieve a flat, but respectable, sales performance this Christmas. Time will tell on margins,” he said.

The European Central Bank is threatening to choke off funding to Greece’s lenders in the hope it won’t actually need to. Parliamentary elections on Jan. 25 hinge on whether Greek voters are willing to accept a strings-attached successor to the country’s international bailout package. Under President Mario Draghi, the Frankfurt-based ECB has made its position clear: No program means no guarantee of cash from us. Draghi is reprising an ECB tactic honed in the Irish and Cypriot stages of Europe’s debt crisis, where the prospect of vanishing central-bank funds helped prod politicians into action. Amid anti-austerity promises by the Syriza party, which leads in polls, the ECB is signaling a willingness to withdraw 30 billion euros ($35 billion) of finance even if it tips Greece into a crisis that ultimately sees it leave the single currency.

“While these things might be threatened, bandied around, it would be remarkable if such a step were actually taken,” said James Nixon, chief European economist at Oxford Economics Ltd. in London. “The negotiation starts off with the threat of mutually assured destruction. But to actually withdraw funding from Greek banks is the sort of thing that would mean Greece is well on the road to exiting the euro.” Since 2010, the ECB has accepted Greece’s junk-rated government debt and state-backed securities as collateral in its refinancing operations as long as the administration complies with austerity measures and reform pledges in its international aid agreements.

The European Central Bank will be forced to boost its balance sheet to €4.5 trillion in a colossal monetary blitz to prevent deflation engulfing the eurozone, economists at RBS have warned. The figure is the most aggressive forecast issued so far by any major bank and implies quantitative easing (QE) of at least €2.3 trillion, two or even three times the level suggested so far by ECB officials. It comes amid a blizzard of leaks from Frankfurt over the size and shape of QE as the ECB prepares for a pivotal decision next week. Most analysts say sovereign bond purchases are almost certain after the currency bloc slumped into deflation in December, though legal and political barriers complicate the picture.

The RBS report, entitled “Deflation Motel: you can check in, but you can’t check out”, said the buying spree will drive 10-year yields to near zero or even lower in the core countries. The German Bund yield will continue to smash historic records, dropping to 0.13% by the end of this quarter, pulling Italian yields down to 1%. “It is very easy to make a case over coming months for negative 10-year Bund yields. We are increasingly asking ourselves the question, who on Earth is the ECB going to be buying them from,” said Andrew Roberts, the bank’s credit chief. “It is Japanification no longer. It goes even further.” Germany plans a budget surplus this year that will cause Bund issuance to dry up. The report said Germany’s debt agency will cancel a net €18bn of bonds next year with maturities from five to 30 years.

This scarcity of new debt will continue since a constitutional amendment is coming into force that makes a balanced budget obligatory. The Bundesbank may have to find other ways of conducting QE, opting instead to buy the debt of the German Lander or the state development bank KfW. The report said the first blast of QE to be unveiled next week – though not necessarily enacted immediately – will fail to stop the slide towards debt-deflation as powerful deflationary pressures from Asia and the global effects of China’s excess capacity overwhelm Europe’s defences.

European Central Bank policy makers are using the specter of deflation as an excuse to help the euro area’s weaker nations, said Hans-Werner Sinn, head of Germany’s Ifo economic institute. The argument by central bankers that the ECB needs to act because inflation is below its goal of just under 2% isn’t covered by the treaty governing the currency union, Sinn said in a phone interview. Consumer prices in the euro area posted an annual decline in December for the first time in more than five years, though core inflation rose. “The risk of deflation is just a pretext for quantitative easing, for hammering out a bailout program for southern Europe,” Sinn said. The decline in inflation is due to lower crude prices and “there’s no need for ECB action,” he said.

Buying investment-grade government bonds is among the options that staff presented to ECB policy makers last week before a meeting on Jan. 22 at which they will consider further stimulus, according to a euro-area central bank official. The bank is already buying asset-backed securities and covered bonds, part of unprecedented measures announced by ECB President Mario Draghi since June that include negative deposit rates and four-year loans to banks. To ward off deflation, the ECB intends to expand its balance sheet toward €3 trillion ($3.55 trillion) from €2.2 trillion now. Complicating Draghi’s task are Greek elections on Jan. 25 that polls suggest may be won by the Syriza alliance, which wants to restructure the nation’s debt.

Quantitative easing “would give the ECB the function of lender of last resort toward individual states” in the euro area, said Sinn, who advocates an international conference to write down Greek debt. While Bundesbank head Jens Weidmann, lawmakers in German Chancellor Angela Merkel’s coalition and economists such as Sinn criticize the ECB’s expanding role, Merkel hasn’t opposed Draghi publicly. The chancellor on Jan. 7 backed keeping Greece in the euro area as long as it fulfills its austerity commitments, saying she has “always” sought to keep the euro area from splintering.

Greece could stumble out of the euro by accident if a new government fails to reach an agreement with international creditors soon after this month’s election, Finance Minister Gikas Hardouvelis said. The main challenge facing whichever government emerges from the Jan. 25 vote will be to close the stalled review of Greek progress in meeting the terms of its financial rescue by the euro area and International Monetary Fund, he said. If that government is led by Syriza, it would be “prudent” to reverse its stance and negotiate an extension to the bailout before the aid supporting Greece expires on Feb. 28, Hardouvelis said. The prospect of “leaving the euro area is not necessarily a bluff,” Hardouvelis, 59, said in a Bloomberg Television interview in Athens yesterday. “An accident could happen, and the whole idea is to avoid it.”

Opinion polls show the opposition Syriza party of Alexis Tsipras with a slim though consistent lead over Prime Minister Antonis Samaras’s New Democracy. Tsipras has said he’ll roll back the austerity measures tied to the bailout and seek a write down on some Greek debt, putting him on a collision course with the so-called troika of creditors including the European Central Bank, which have kept the country afloat with €240 billion ($284 billion) of loans pledged since 2010. Tsipras’s commitment to keep the country in the euro area hasn’t stopped New Democracy from stoking concerns during the campaign that a Syriza victory could force Greece out of the currency bloc. The yield on Greece’s benchmark 10-year bond, which breached the 10% mark for the first time in 15 months last week, fell the most since October yesterday, suggesting investor perceptions of Syriza may be shifting.

Local governments in some of China’s smallest cities are snapping up an increasing amount of their own land at auctions, in a destructive cycle designed to prop up property prices but which is ravaging their own finances. Local government financing vehicles in at least one wealthy province, Jiangsu, which borders Shanghai, accounted for more land purchases than property developers did in 2013 — the last year for which data were available — according to research collated by Deutsche Bank. The data signal that already cash-strapped local governments are switching money from one pocket to another rather than booking real sales.

“China faces a severe fiscal challenge in 2015,” as local governments are forecast to record the first contraction in revenues since 1994 and total government revenues grow by the smallest percentage since 1981, Zhang Zhiwei, Deutsche Bank’s chief Asia economist, said on Monday. Although Deutsche Bank only reviewed data for four provinces, concerns about the health of property markets in third-tier cities across China are mounting. Local government budgets, especially in smaller cities, rely heavily on land sales, which in turn are dependent on strong property demand and prices.

A glut of new building combined with tougher credit markets has cooled interest in all but the largest cities, forcing local governments to step in and prop up their own land prices. and sales account for about a quarter of local government revenues on average across China but there is a “huge range”, said Debra Roane of Moody’s rating agency. “The issue is that land as a source of revenue is highly volatile.” LGFVs appeared about six years ago. Created to fund Beijing-mandated stimulus projects in the wake of the global financial crisis, they quickly exacerbated concerns over rising levels of local government debt. Use of the vehicles to prop up land prices would further stoke those concerns.

China’s car dealers are in open revolt over industry practices that have slashed profits, threatening growth prospects for companies such as General Motors and Volkswagen in the world’s biggest auto market. Retailers are banding together under the state-backed China Automobile Dealers Association to demand lower sales targets and a bigger share of profit from vehicle sales. BMW’s agreement last week to pay 5.1 billion yuan ($820 million) to its dealers has emboldened distributors for VW and Toyota to demand similar concessions. The rising tensions means companies like VW and GM will face the choice of narrower profit margins or slower growth in China, a market that increasingly determines the fortunes of global automakers.

China vehicle sales in 2014 rose at half the pace of the preceding year, a “new normal” according to BMW after surging growth in past years triggered by government subsidies. “We can’t just keep on sucking it up,” said Richard Li, 40, a Toyota dealership owner who lost about 300,000 yuan last year after offering markdowns of as much as 16% on some models. “We have to negotiate with them and defend our rights. I will stop buying cars from them unless they step up their financial support.” Total vehicle sales are forecast to rise 7% this year, little changed from 2014, because of cooling growth and as more cities impose purchase restrictions to fight pollution, according to the China Association of Automobile Manufacturers.

Almost all retailers in the country are offering discounts and selling some models at losses to meet sales targets set by automakers, according to a survey by the China Auto Dealers Chamber of Commerce. Sales targets are crucial because dealers must meet them to qualify for year-end bonuses, which account for more than half of their annual profit from selling cars, according to the trade group. “When auto sales were booming in China, dealers would do anything the automakers asked them to do in order to gain their authorization to sell cars,” said Han Weiqi, an analyst with CSC. “With the expected slowdown in demand growth, manufacturers and dealers will have to find a way to make peace and secure their common interests.”

Growth in vehicle sales in the world’s largest car market, China, halved last year as the country’s economic expansion slowed. The China Association of Automobile Manufacturers (CAAM) said that sales rose by 6.9% in 2014, compared with growth of 13.9% a year earlier. The industry body also expects the market to expand by 7% this year, in line with China’s economic growth. Global carmakers have been grappling with slowing sales in China. On Sunday, Volkswagen, which is Europe’s biggest carmaker and the top selling global brand in China, said its sales in the country rose 12.4% to 3.67 million vehicles last year, compared with growth of 16% in 2013. Japanese carmaker Toyota missed its full-year sales target in China last year, selling 1.03 million cars compared with its aim of 1.1 million. However, despite the cooling of the car market in the world’s second-largest economy, its size is still much bigger than that of its closest competitor – the US. More than 23 million vehicles were sold in China last year, compared with an estimated 16.5 million in the US.

“The banking armature that is the dwelling place of all that debt is coming apart just as surely as the 20th century Muslim nation-states that were largely a creation of the West. The long war underway is a race to the bottom where the human project has to re-set the terms of a life above savagery.”

The big turnout in Paris was bracing but it also might reveal a sad fallacy of Western idealism: that good intentions will safeguard soft targets. The world war underway is not anything like the last two. Against neo-medieval barbarism, the West looks pretty squishy. All of the West is one big fat soft target. Recriminations are flying – as if this was something like a Dancing with the Stars contest — to the effect that the Charlie Hebdo massacre should not be labeled as “France’s 9/11.” It’s a matter of proportion, they say: only 12 dead versus 2977 dead, plus, don’t forget, the shock of two skyscrapers pancaking into the morning bustle of lower Manhattan. Interesting to see how the West tortures itself psychologically into a state of neurasthenic fecklessness. The automatic cries for “unity,” only beg the question: for or against what? The same cries went up in the USA after the Ferguson, Missouri, riots and the Eric Garner grand jury commotion, pretty much disconnected from the reality of ghetto estrangement, as if unity meant brunch together.

The demonstrators quickly reminded everybody that Homey don’t play brunch. If French politicians think that some magical overnight state of fraternité will congeal between the alienated Islamic masses and the rest of the citizenry, they’re liable to be disappointed. If anything, mutual distrust is only hardening on each side, and, anyway, I think that is not the kind of unity they have in mind. Over in Germany, they don’t have to travel very far psychologically to recall the awful efficiency of Hitler in purifying the social scene according to some dark cthonic principle that remains essentially unexplained even after all these years and ten thousand books on the subject. It happened that he picked on a group that wasn’t disturbing the peace in any way; if anything, the Jews were busier than anyone contributing to Western culture, knowledge, and science.

It is at least well-understood that there are seasons in history, but they seem to have a mysterious, implacable dynamism that mere humans can only hope to ride like great waves, hoping to not get crushed. In the background of the present disturbances are not only the rise of Islamic fundamentalism, but the imminent collapse of the machinery that boosted up the greater Islamic economy of our time: the oil engine. It was oil and oil alone that allowed the populations of the Islamic world to blossom in a forbidding desert in the late 20th century, and that orgy of wealth is coming to an end. So will the ability of that region to support the populations now occupying it. The violent outreach of Islamic wrath is actually a symptom of the region’s death throes, already obvious in the disintegration of one nation-state after another across North Africa and the Middle East. Saudi Arabia will only be one of the last dominoes to fall because it is so stoutly girded by desperate American support.

Recent events, such as the overthrow of the government in Ukraine, the secession of Crimea and its decision to join the Russian Federation, the subsequent military campaign against civilians in Eastern Ukraine, western sanctions against Russia, and, most recently, the attack on the ruble, have caused a certain phase transition to occur within Russian society, which, I believe, is very poorly, if at all, understood in the west. This lack of understanding puts Europe at a significant disadvantage in being able to negotiate an end to this crisis.

Whereas prior to these events the Russians were rather content to consider themselves “just another European country,” they have now remembered that they are a distinct civilization, with different civilizational roots (Byzantium rather than Rome)—one that has been subject to concerted western efforts to destroy it once or twice a century, be it by Sweden, Poland, France, Germany, or some combination of the above. This has conditioned the Russian character in a specific set of ways which, if not adequately understood, is likely to lead to disaster for Europe and the world.

Lest you think that Byzantium is some minor cultural influence on Russia, it is, in fact, rather key. Byzantine cultural influences, which came along with Orthodox Christianity, first through Crimea (the birthplace of Christianity in Russia), then through the Russian capital Kiev (the same Kiev that is now the capital of Ukraine), allowed Russia to leapfrog across a millennium or so of cultural development. Such influences include the opaque and ponderously bureaucratic nature of Russian governance, which the westerners, who love transparency (if only in others) find so unnerving, along with many other things. Russians sometimes like to call Moscow the Third Rome – third after Rome itself and Constantinople – and this is not an entirely empty claim. But this is not to say that Russian civilization is derivative; yes, it has managed to absorb the entire classical heritage, viewed through a distinctly eastern lens, but its vast northern environment has transformed that heritage into something radically different.

France’s worst terror attacks in more than half a century show the need for “urgent” cooperation between Russia and the U.S. and Europe, Russia’s top diplomat said. Russian Foreign Minister Sergei Lavrov criticized a continued freeze in anti-terrorist ties imposed over the Ukraine conflict, telling reporters in Moscow today that such a key matter shouldn’t be based on “personal emotions and grievances.” Lavrov also rejected conditions for a lifting of what he said were “illegitimate” sanctions against his country, including handing joint control of the border between separatist-controlled areas of eastern Ukraine and Russia to Ukrainian forces.

While Russia has condemned the attacks, which started with an assault on the offices of the satirical magazine Charlie Hebdo on Jan. 7 that killed 12 people, its expression of solidarity hasn’t eased tensions with its former Cold war foes. Lavrov was the most senior Russian official to join the largest march in French history yesterday in Paris along with leaders from dozens of countries. He said the militants behind the terror spree had ties to Islamists seeking the overthrow of Syrian President Bashar al-Assad, who’s also a target of the U.S. and its allies. Russia, which says the U.S. and Europe have encouraged the spread of militancy by their efforts to oust Assad, is locked in the worst geopolitical standoff since the Cold War over the fighting in Ukraine that’s killed more than 4,800 people since April.

Russia, a Soviet-era ally of Syria, has supported Assad through weapons sales and by blocking punitive action against him at the United Nations Security Council. Alexei Pushkov, a senior pro-government lawmaker in Moscow, said in comments published today that Europe is guilty of “double standards” in its attitude toward terrorism and Ukraine, where Russia accuses the government in Kiev of using force to suppress Russian speakers. Europe is heading toward a conflict of civilizations through the publication of cartoons mocking the Muslim prophet Muhammad in Charlie Hebdo, Pushkov, head of the foreign affairs committee of the lower house of parliament, said in an interview with Izvestia newspaper.

“.. the US and its allies have deliberately radicalized Muslim fighters in the hopes they would strictly fight those they are told to fight. We learned on 9/11 that sometimes they come back to fight us.”

After the tragic shooting at a provocative magazine in Paris last week, I pointed out that given the foreign policy positions of France we must consider blowback as a factor. Those who do not understand blowback made the ridiculous claim that I was excusing the attack or even blaming the victims. Not at all, as I abhor the initiation of force. The police blaming victims when they search for the motive of a criminal. The mainstream media immediately decided that the shooting was an attack on free speech. Many in the US preferred this version of “they hate us because we are free,” which is the claim that President Bush made after 9/11. They expressed solidarity with the French and vowed to fight for free speech. But have these people not noticed that the First Amendment is routinely violated by the US government? President Obama has used the Espionage Act more than all previous administrations combined to silence and imprison whistleblowers.

Where are the protests? Where are protesters demanding the release of John Kiriakou, who blew the whistle on the CIA use of waterboarding and other torture? The whistleblower went to prison while the torturers will not be prosecuted. No protests. If Islamic extremism is on the rise, the US and French governments are at least partly to blame. The two Paris shooters had reportedly spent the summer in Syria fighting with the rebels seeking to overthrow Syrian President Assad. They were also said to have recruited young French Muslims to go to Syria and fight Assad. But France and the United States have spent nearly four years training and equipping foreign fighters to infiltrate Syria and overthrow Assad! In other words, when it comes to Syria, the two Paris killers were on “our” side. They may have even used French or US weapons while fighting in Syria.

Beginning with Afghanistan in the 1980s, the US and its allies have deliberately radicalized Muslim fighters in the hopes they would strictly fight those they are told to fight. We learned on 9/11 that sometimes they come back to fight us. The French learned the same thing last week. Will they make better decisions knowing the blowback from such risky foreign policy? It is unlikely because they refuse to consider blowback. They prefer to believe the fantasy that they attack us because they hate our freedoms, or that they cannot stand our free speech. Perhaps one way to make us all more safe is for the US and its allies to stop supporting these extremists. Another lesson from the attack is that the surveillance state that has arisen since 9/11 is very good at following, listening to, and harassing the rest of us but is not very good at stopping terrorists.

Charlie Hebdo will print 3 million copies of a special issue of the satirical magazine, depicting the Prophet Muhammad on the cover, a week after an attack at its headquarters left a third of its journalists dead. Publishers of the weekly magazine will put the copies on newsstands worldwide in 16 languages on Jan. 14. The issue will feature a cartoon of Muhammad, crying, on a green background, holding a board saying “Je suis Charlie” or “I am Charlie.” Above his image is written “All is Forgiven.” Millions of people in France and across the world rallied in marches in the past week to show support for the Charlie Hebdo victims. The killings by self-proclaimed jihadists are the deadliest attacks in France in half a century. France has been on the highest terrorist alert since the first attack.

More than 15,000 special forces are being deployed to protect sensitive sites across the country, including Jewish schools, tourist landmarks and Charlie Hebdo’s new headquarters in Paris. This week’s magazine will have six or eight pages instead of the usual 16. “This won’t be a tribute issue of some sort,” Richard Malka, Charlie Hebdo’s lawyer and spokesman, told France Info radio Monday. “We will be faithful to the spirit of the newspaper: making people laugh.” mThe magazine’s circulation has dropped over the years. While issues with covers depicting Muhammad sold about 100,000 copies, the magazine often printed 60,000 copies and sales sometimes didn’t exceed 30,000. After the attack, French Culture Minister Fleur Pellerin pledged €1 million ($1.2 million) of state money to help the publication. Google promised to give €250,000, U.K. daily The Guardian €125,000. The French press association opened a bank account which is attracting donations from the public.

Each country has its own invasive species and rampant plants with a tendency to take over. In most, the techniques for dealing with them are similar – a mixture of powerful chemicals and diggers. But in the US a new weapon has joined the toolbox in recent years – the goat. In a field just outside Washington, Andy, a tall goat with long, floppy ears, nuzzles up to his owner, Brian Knox. Standing with Andy are another 70 or so goats, some basking in the low winter sun, and others huddled together around bales of hay. This is holiday time – a chance for the goats to rest and give birth before they start work again in the spring. Originally bought to be butchered – goat meat is increasingly popular in the US – these animals had a lucky escape when Knox and his business partner discovered they had hidden skills. “We got to know the goats well and thought, we can’t sell them for meat,” he says.

“So we started using them around this property on some invasive species. It worked really well, and things grew organically from there.” They are now known as the Eco Goats – a herd much in demand for their ability to clear land of invasive species and other nuisance plants up and down America’s East Coast. Poison ivy, multiflora rose and bittersweet – the goats eat them all with gusto, so Knox now markets their pest-munching services one week at a time from May to November. Over the past seven years, they have become a huge success story, consuming tons of invasive species. “I joke that I drive the bus, but they’re the real rock stars,” says Knox, who also works as a sustainability consultant. Typically, chemicals and/or machinery are used to clear away fast-growing invasive plants, but both methods have their drawbacks. Chemicals can contaminate soil and are not effective in stopping new seeds from sprouting.

Pulling plants out by machine can disturb the soil and cause erosion. Goats, says Knox, are a simple, biological solution to the problem. “This is old technology. I’d love to say I invented it, but it’s been around since time began,” he says. “We just kind of rediscovered it.” One of the reasons goats are so effective is that plant seeds rarely survive the grinding motion of their mouths and their multi-chambered stomachs – this is not always the case with other techniques which leave seeds in the soil to spring back. Unlike machinery, they can access steep and wooded areas. And tall goats, like Andy, can reach plants more than eight feet high. A herd of 35 goats can go through half an acre of dense vegetation in about four days, which, says Knox, is the same amount of time it gets them to become bored of eating the same thing.

Back in June, when we were looking at the final Q1 GDP print, we discovered something very surprising: after the BEA had first reported that absent for Obamacare, Q1 GDP would have been negative in its first Q1 GDP report, subsequent GDP prints imploded as a result of what is now believed to be the polar vortex. But the real surprise was that the Obamacare boost was, in the final print, revised massively lower to actually reduce GDP! This is how the unprecedented trimming of Obamacare’s contribution to GDP looked like back then.

Of course, even back then we knew what this means: payback is coming, and all the BEA is looking for is the right quarter in which to insert the “GDP boost”. This is what we said verbatim:

Don’t worry though: this is actually great news! Because the brilliant propaganda minds at the Dept of Commerce figured out something banks also realized with the stub “kitchen sink” quarter in November 2008. Namely, since Q1 is a total loss in GDP terms, let’s just remove Obamacare spending as a contributor to Q1 GDP and just shove it in Q2. Stated otherwise, some $40 billion in PCE that was supposed to boost Q1 GDP will now be added to Q2-Q4. And now, we all await as the US department of truth says, with a straight face, that in Q2 the US GDP “grew” by over 5% (no really: you’ll see).

Well, we were wrong: it wasn’t Q2. It was Q3, albeit precisely in the Q2-Q4 interval we expected. Fast forward to today when as every pundit is happy to report, the final estimate of Q3 GDP indeed rose by 5% (no really, just as we predicted), with a surge in personal consumption being the main driver of US growth in the June-September quarter. As noted before, between the second revision of the Q3 GDP number and its final print, Personal Consumption increased from 2.2% to 3.2% Q/Q, and ended up contributing 2.21% of the final 4.96% GDP amount, up from 1.51%. So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services? Actually no. The answer, just as we predicted precisely 6 months ago is… well, just see for yourselves.

In short, two-thirds of the “boost” to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the “polar vortex” crashed the number so badly, the BEA decided to pull it completely and leave this “growth dry powder” for another quarter. That quarter was Q3.

This is simply stunning. Regular readers will recall that last month, at the same time as the US Bureau of Economic Analysis reported was a far better than expected 3.9% GDP (since revised to 5.0% on the back of the previously noted Obamacare spending surge), it also released its Personal Spending and Income numbers for the month of October, or rather revised numbers, because as we explained exactly one month ago “Americans Are Suddenly $80 Billion “Poorer”” thanks to (upward) revised spending data and (downward) revised income. What this meant a month ago is that as a result of a plunge in the imputed US savings rate, some $80 billion in personal savings was revised away from the average American household and right into the US economy. After all, something had to grow the US GDP by a massive amount in order to give the Fed the green light it needs to hike rates eventually, just so it can then ease when the global dry powders from all the other central banks is used up.

And sure enough, this is how just one month ago, personal income was revised lower…

… Even as personal spending was revised higher:

Leading to an $80 billion revision lower in personal saving, and by mathematical identity, a comparable growth in US GDP. Fast forward to today when we find that… absolutely nothing has changed, and in order to boost US GDP some more, the BEA engaged in precisely the same data revision trick! On the surface, today’s Personal Income and Spending data were inline to a little bit better than expected: Personal Income supposedly rose 0.4% in November, up from a 0.3% revised growth in October, and in line with expectations. Personal Spending supposedly also rose, this time by 0.6%, up from an upward revised 0.3%, and just above the 0.5% expected. Of note: real spending on gasoline and other energy goods rose 4.1%. Wait, what? Wasn’t spending on energy supposed to drop?

So far so good: nothing abnormal (except for the clearly made up spending data), and in isolation this data would be good, suggesting the US consumer is getting more confident and is spending ever more as the year closes, on expectations of higher paying jobs, stronger economy, etc. And then we looked at the Personal Savings number: it was reported at 4.4% in November, down from 4.6% in October. Which is odd because last month, the October savings rate was disclosed as 5.0%, in turn down from a downward revised 5.6% in September. Wait, could the BEA be engaging in precisely the same deception in November as it did in October. Why yes, Virgina: not only did the US Department of Economic Truth completely fabricate its GDP numbers earlier, but the way it got to said fabrication is by fudging – for the second month in a row – both the entire Personal Income and Personal Spending data series.

“The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

“Did you wake up before or after the sunrise today?” asks Professor Steve Keen “After,” I mutter sheepishly. “That’s a trick question. The sun doesn’t rise,” he says before letting out a guffaw. “The earth rotates… (But) it’s more natural for us to use that language than to say what actually happens.” The analogy is rather fitting for an Australian academic who wrote a book called Debunking Economics, and is now the chief economist of a global network of thinkers that declares it is “dedicated to the reform of economics”. In Bangkok recently for the launch of the Institute for Dynamic Economic Analysis, the 61-year-old professor in Britain’s Kingston University London equates mainstream economic theory with spurious astronomy assumptions.

Strangely enough, he says, it overlooks the role of money. Instead, it likens governments to households which ought to prize prudence, which in government terms means generating consistent surpluses. But the private sector, in order to pay the government enough to generate its surplus, has two options: It either “runs down the money it’s got, which means the economy is shrinking”, or borrows money to make such payments. Countries that run a trade surplus with others can maintain a permanent surplus without forcing its private sector into a debt crisis, but the good times don’t last. China – the world’s largest economy – is an example where the rise of private sector debt is bringing the country dangerously close to a crisis, he says.

Its central bank made a surprise cut in interest rate in November amid weakening economic data. Growth in the third quarter slackened to 7.3%, which is already its lowest since 2009. Prof Keen, who accurately predicted the last financial crisis before the 2008 crash, warns that another even bigger bubble is brewing in China. Chinese private sector debt, he points out, has risen from roughly 100% of its gross domestic product in 2008 to about 180% now, as the government encouraged lending to stimulate demand and make up for the shortfall in exports. “That’s an enormous increase,” he says. “The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

“.. mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit..”

UBS is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015. The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research in Hong Kong at UBS. Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7% drop in the yuan next year. The renminbi is heading for a 2.8% drop in 2014 as the dollar gains on Federal Reserve plans to raise interest rates and the People’s Bank of China cuts borrowing costs to support a flagging economy. Capital controls and record foreign-exchange reserves will help the PBOC cope with any similar situation to 1997’s Asian financial crisis, when firms struggled to repay debt as regional currencies slumped, Andrews said.

“This could get very uncomfortable very quickly,” he said in a Dec. 12 interview. “I boil it down to its basics. You’ve borrowed unhedged and leveraged: you’re at risk.” Andrews says the mechanics of what’s happening are this: mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit, leveraging even further, said Andrews. That money is then used to invest in China’s high-yield and often risky trust products or in the booming stock market. The profits are then used to pay off dollar borrowings.

Hong Kong banks mainland-related lending stood at HK$3.06 trillion ($394 billion) at the end of September, 14.7% of total assets, according to the city’s monetary authority. Andrews said his estimate is higher as he includes trade bills and other forms of lending not captured by the data, such as between sister companies in intergroup corporate transfers or letters of credit between onshore and offshore bank branches. “There were too many cheap dollars in the market for everyone to borrow,” Kevin Lai, an economist at Daiwa in Hong Kong, said Dec. 16. “If you just put the money in China, the carry plus appreciation is about 5%, so why not, right?” Lai estimates $1 trillion of carry-trade inflows since the first round of quantitative easing in 2008, of which $380 billion entered China disguised as commerce flows.

Offshore oil-drilling contractors, who last year were able to charge record rates for their vessels, are now under pressure to scrap old rigs at an unprecedented pace. The recent five-year low in oil prices is threatening an industry already grappling with a flood of new vessels and weakening demand. More than 200 new rigs are scheduled to be delivered in the next six years. That’s a 25% jump from the number currently under contract. To cope, many rig owners will try to keep revenue up by culling older vessels to balance supply and demand. “The older assets, particularly those built before the 2000 time period, are really less desired by the industry,” James West, an analyst at Evercore ISI in New York, said in a phone interview.

Those vessels “are only causing the customer base to use those rigs against higher quality rigs to get pricing lower.” About 140 older rigs would need to be scrapped to make way for the new vessels scheduled for delivery by 2020, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence. That pace would double the number scrapped in the previous six years and even eclipse the 123 vessels retired since 2000, according to data compiled by Bloomberg. Booming offshore exploration earlier in the decade encouraged a flurry of rig orders. That’s now leading to a potential market crash in a global industry pegged to generate revenue of $61.5 billion this year. Low oil prices are compounding the problem, alarming investors.

Three of the six worst performers in the Standard & Poor’s 500 Index this year are offshore rig contractors: Transocean, Noble and Ensco. Hercules Offshore, the largest provider of shallow-water rigs in the Gulf of Mexico, has fallen 84% as producers consolidated and drilling was postponed. “There is an old saying: If our customers get a cold, we get pneumonia,” John Rynd, chief executive officer of Houston-based Hercules, told investors this month. “We’re getting pneumonia right now.” Next year may be worse. Explorers and producers are expected to cut offshore spending by 15%, with “grievous” cuts coming for exploration, Bill Herbert, an analyst at Simmons & Co., said in an e-mail.

Narrative, we have a problem! No lesser oil-man than T. Boone Pickens made quite an appearance on CNBC this morning – stunning the cheerleaders into first defense then silence as he broke the facts on oil’s collapse to them. Oil is down “mainly due to weak demand,” he explains… the anchors deny, “I am the expert, not you” Pickens rages as he warns drilling rigs will be laid down on a very wide scale (just as we have noted previously). Arguing over ‘peak oil’, he calls CNBC chatter “bullshit” and laid out a rather dismal short- to medium-term outlook for the oil & gas sector – not what the cheerleading tax-cut slurping media narrative wants to hear at all…

“demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months” Capex cuts coming… oil prices may be back at $90-100 Brent in 12-18 months but not without rig counts plunging. At 4:15 Pickens starts to discuss Peak Oil… enjoy – CNBC: “Peak Oil didn’t happen” .. Pickens: “That’s all bullshit… I am the expert not you” CNBC: “well you’re not much of an expert if you thought Peak Oil happened”

As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudi Arabia and Venezuela have more proven reserves of crude. Almost all of Canada’s reserves (and production) are in the form of oil sands, which are among the most expensive types of crude to produce. There are pretty much two ways to do it. One is to inject steam into wells deep underground to heat up a thick, gooey type of oil called bitumen. The other is basically to strip mine large tracts of land and extract a synthetic blend of oil out of the earth and sand. Taken together, both methods require about 17% more energy and water than conventional oil wells and also result in similarly higher levels of carbon emissions.

That’s made oil sands a particular target of environmentalists. Now the Canadian oil sands producers have to contend with an even greater opposing force: economics. If Canadian oil sands are more expensive to produce than most other oil, how can they survive in the face of prices that are nearly 50% cheaper since June? A few things play to their favor. The first is that their costs are more akin to a mining operation than conventional oil drilling. Oil sands projects require massive upfront investments, but once those are made, they can go on producing for years with relatively low costs. That’s made oil sands, and the companies that produce them, quite profitable over the past few years. Suncor and Cenovus are two of the biggest oil sands producers in Canada. Both have profit margins that would be the envy of a lot of major oil companies.

At Suncor, earnings before interest, taxes, depreciation, and amortization (Ebitda), a basic measure of a company’s financial performance, have risen from 11.7% in 2009 to 31% through the first nine months of 2014. Exxon Mobil’s Ebitda so far this year is about half that at 14.3%. That cost structure may give oil sands producers an advantage over frackers in the U.S., who operate on a much shorter time horizon. Fracked wells in the U.S. tend to produce most of their oil within about 18 months or so. That means that to maintain production and rates of return, frackers need to keep reinvesting in projects with fairly short lifespans, whereas an oil sands project, once up and running, can continue to chug along, even in the face of lower prices, since its costs are spread out over a decade or more rather than over a couple years. That should keep overall oil sands production from falling and help insulate oil sands producers from lower prices, at least for now.

Having exuberantly reached its highest level since September 2013 last month (despite the total collapse in mortgage applications), it appears the ugly reality of the housing market has peeked its head out once again. As prices rose, existing home sales plunged 6.1% – the most since July 2010 (against an expected 1.1% drop) to 4.93mm SAAR (the lowest in 6 months). So what was it this time: the polar vortex, the crude collapse, the crude vortex? Neither: According to the NAR’s endlessly amusing Larry Yun, this time it was the stock market: “The stock market swings in October may have impacted some consumers’ psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market.”

Supposedly he is referring to the tumble, not the resulting Bullard “QE4” mega-explosion in stocks that pushed everyhting to new all time highs. In other words, according to the NAR, even the tiniest downtick in stocks, and the housing market gets it. Sure enough, it is time to boost confidence in a rigged, manipulated ponzi scheme: DROP IN NOVEMBER COULD BE ONE-MONTH ‘ABERRATION,” YUN SAYS .. Unless, of course, stocks drop again, in which case all bets are off. Meanwhile, it appears investors have left the building…

Minimum wage increases across the United States will prompt Wal-Mart Stores Inc to adjust base salaries at 1,434 stores, impacting about a third of its U.S. locations, according to an internal memo reviewed by Reuters. The memo, which was sent to store managers earlier this month, offers insight into the impact of minimum wage hikes in 21 states due to come into effect on or around Jan. 1, 2015. These are adjustments that Wal-Mart and other employers have to make each year, but growing attention to the issue has expanded the scope of the change. Thirteen U.S. states lifted the minimum wage in 2014, up from 10 in 2013 and 8 in 2012. Wal-Mart spokeswoman Brooke Buchanan said the company was making the changes to “ensure our stores in the 21 states comply with the law.”

For Wal-Mart, the biggest private employer in the United States with 1.3 million workers, minimum wage legislation is not a small thing. Its operating model is built on keeping costs under close control as it attracts consumers with low prices and operates on tight margins. In recent years, it has been struggling to grow sales after many lower-income Americans lost jobs or income in the financial crisis. The Wal-Mart memo shows that there will be changes to its pay structure, including a narrowing of the gap in the minimum premium paid to those in higher skilled positions, such as deli associates and department supervisors, over lower grade jobs. Wal-Mart will also combine its lowest three pay grades, which include cashiers, cart pushers and maintenance, into one base rate.

The changes appear in part to be an effort to offset the anticipated upswing in labor costs, according to a manager who was implementing the changes at his store. “Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level,” said the manager, who spoke on condition of anonymity. Wal-Mart’s critics – including a group of its workers backed by labor unions – say the retailer pays its hourly workers too little, forcing some to seek government assistance that effectively provides the company with an indirect taxpayer subsidy. Labor groups have been calling for Wal-Mart, other retailers and fast-food chains to pay at least $15 an hour.

For all those who think the upcoming carnage to the shale industry will be “contained” we refer to the following research report from the Manhattan Institute for Policy Research:

The United States is now the world’s largest and fastest-growing producer of hydrocarbons. It has surpassed Saudi Arabia in combined oil and natural gas liquids output and has now surpassed Russia, formerly the top producer, in natural gas. [ZH: that’s about to change]

The increased production of domestic hydrocarbons not only employs people directly but also radically reduces the drag on growth and job formation associated with America’s trade deficit.

As the White House Council of Economic Advisors noted this past summer: “Every barrel of oil or cubic foot of gas that we produce at home instead of importing abroad means more jobs, faster growth, and a lower trade deficit.” [the focus now is not on the oil produced at home, which is set to plunge, but the consumer “tax cut” from plunging oil prices]

Since 2003, more than 400,000 jobs have been created in the direct production of oil & gas and some 2 million more in indirect employment in industries such as transportation, construction, and information services associated with finding, transporting, and storing fuels from the new shale bounty.

All told, about 10 million Americans are employed directly and indirectly in a broad range of businesses associated with hydrocarbons.

There are 16 states with more than 150,000 people employed in hydrocarbon-related activities. Even New York, which continues to ban the production of shale oil & gas, is seeing job benefits in a range of support and service industries associated with shale development in adjacent Pennsylvania.

Asian currencies could be in for a wild ride in 2015, with central bank policy on track for further divergence as the Federal Reserve prepares to raise interest rates, analysts say. “The U.S. Federal Reserve will be hiking interest rates next year, while some Asian central banks will be acting in the opposite direction. Growth momentum is firmly in favor of the U.S., while structural and cyclical slowdowns in certain parts of Asia will see growth differentials narrow,” ANZ said in a note last week. The Federal Reserve is widely expected to hike interest rates in July after unwinding its quantitative easing program this year, according to CNBC’s latest Fed survey of economists, strategists and fund managers, released last week. By contrast, most of Asia’s central banks are easing.

The People’s Bank of China cut interest rates for the first time in two years in October, while the Bank of Korea cut rates to a record low that month. Meanwhile, the Bank of Japan remains committed to its massive stimulus effort, while calls for rate cuts in Thailand and Australia are growing. ANZ forecasts 3% depreciation in Asian currencies over 2015, “a similar decline to that seen in 2014,” noting that “risks are tilted towards a larger depreciation should tighter U.S. monetary policy lead to larger portfolio outflows from the region.” Saxo Capital Markets agrees. “The world’s major central banks and economies are entirely out of sync and the oil price collapse has added a dramatic new geopolitical and economic twist to global markets,” Saxo’s head of foreign-exchange strategy John Hardy said in a note last week.

He anticipates “U.S. dollar strength on U.S. outperformance” next year. There are four potential ‘what if’ catalysts for currency volatility next year, according to Hardy: U.S. junk bond outflows, the resignation of European Central Bank (ECB) president Mario Draghi, Chinese yuan devaluation and a substantial weakening in the Japanese yen. “There are already signs that the junk bond market in the U.S. is under severe strain here late in 2014. Liquidity is terrible in these bonds,” Hardy said. “Junk bonds related to the U.S. shale oil are the most clearly in the danger zone and investor flow out of bonds could see mayhem and see the Fed ceasing all thoughts of hiking rates,” which would see the dollar weaken sharply.

As Prime Minister Antonis Samaras’s political maneuvers to avoid early elections edge toward a dead end, his warning of turmoil risks falling on deaf ears among Greeks numbed by years of upheaval. After losing a second vote in parliament yesterday on his candidate for a new president, Samaras needs to win over a dozen lawmakers before a final ballot on Dec. 29. Should he fail, the constitution dictates that elections must be called, with opposition party Syriza leading opinion polls. “We’ve already been living through chaos for years now,” said Kostas Grekas, a 23-year-old computer-technology student in Athens who graduates next year. “I’d prefer there to be elections now so that Syriza gets in, just to break up the old party system and to see something different.”

Greece marked 2014 by exiting a six-year recession that cost the country about a quarter of its economic output and tripled the unemployment rate. While Samaras’s pitch is that a change of government would endanger the incipient recovery, Syriza promises to abandon austerity measures tied to the country’s international bailout. Samaras, 63, garnered 168 votes out of 300 members of parliament to get approval for Stavros Dimas as the country’s largely ceremonial head of state. He needed 200 votes for victory and the threshold next week falls to 180 lawmakers. In the third vote, “each MP will come face to face with the anguish of the Greek people and the interests of the nation,” the prime minister said after the result.

The prospect of early parliamentary elections has roiled financial markets in Greece, evoking memories of the height of the financial crisis in 2012 when the country’s euro membership was in jeopardy and Samaras took power after two knife-edge ballots in the space of six weeks. Samaras says Syriza has revived the prospect of a euro exit, yet polls show the party would prevail in a vote. A survey by polling company Rass published on Dec. 21 showed Syriza ahead of Samaras’s New Democracy by 3.4 percentage points, albeit down from 5.3 points in November. “Samaras has cried wolf too many times,” said Dimitrios Triantaphyllou, assistant professor in the international relations department at Kadir Has University in Istanbul. “Evoking the fear of euro exit may not work this time with lawmakers and voters.”

“We’re not talking about folks walking around wearing tin foil on their heads,” Jay tells Sky News. “We’re not talking about conspiracy theorists. “I’m talking about professionals: doctors and lawyers and law enforcement and military. Normal, everyday people. They can’t necessarily put their finger on it. But there’s something about the uncertainty of our times. They know something isn’t quite right.” Jay is a celebrity in the strange but increasingly mainstream world of preppers, writing prepper books and touring America, speaking at prepper expos where a bewildering range of survival supplies and techniques are on offer. Why is it happening? Partly, no doubt, because it allows Americans to indulge in some of their favourite pastimes: consuming, camping and buying lots and lots of guns.

And partly because fear sells, drives up numbers for cable news, and increases sales for everything from dried food to assault rifles. But it’s also arguably a sign of a country coping with economic decline. The end of the American Dream has left people more uncertain about their future, and their country’s. Katy Bryson is in Jay’s prepper network. Prepping, she says, puts Americans back in charge of their destiny. They’re not in control of whether they lose their job or not but they are in control of whether they are prepared. So I feel like that’s why the industry is just booming right now for preparedness,” Katy added. It is also a fundamentally American phenomenon. In a country built on the radical individualism of its founding fathers, people have an inbuilt mistrust in their government’s ability to protect them.

Sociologist Barry Glastner wrote The Culture of Fear. He told Sky News: “Americans are fairly unique as world citizens in that we tend to believe that we control our own destiny as individuals to a much greater extent than we really do.” Ironically, he points out preppers may actually be reacting to their fears in the least effective way. Dangerous weather, terrorist attacks and economic collapses are all best dealt with by higher authorities, he said. “Where there are real dangers, to take an individualistic approach is usually exactly the wrong thing to do. So the kinds of things that the preppers are preparing to protect themselves from are much better handled on a community-wide basis than they are in your own home.”

El Nino-like weather may persist in coming months as the Pacific Ocean continues to warm and indicators approach thresholds for the event that brings drought to Asia and heavier-than-usual rains to South America. Sea-surface temperatures have exceeded the thresholds for a number of weeks and the Southern Oscillation Index has generally been negative for the past few months, Australia’s Bureau of Meteorology said today. While trade winds have been near-average along the equator, they have been weaker in the broader tropical belt, it said. A sustained weakening of trade winds is needed for the phenomenon to develop, the bureau says. El Ninos, caused by periodic warmings of the Pacific, can roil world agricultural markets as farmers contend with drought in Asia or too much rain in South America.

Palm oil, cocoa, coffee and sugar are among crops most at risk, Goldman Sachs says. Forecasters, including Australian scientists, raised the possibility of an El Nino earlier this year before tempering their outlook as conditions didn’t develop. “The tropical Pacific Ocean continues to border on El Nino thresholds, with rainfall patterns around the Pacific Ocean basin and at times further afield displaying El Nino-like patterns over recent months,” the bureau said. “If current conditions do persist, or strengthen into next year, 2014–2015 is likely to be considered a weak El Nino.” El Nino conditions appear to have formed and will probably continue, the Japan Meteorological Agency said on Dec. 10. The surface temperature of the Pacific was higher than normal in almost all areas in November, it said.

Hey! Who said economics can’t be fun?! How is it not absolutely brilliant that in the face of a collapsing shale oil industry – or at least, for the moment, of its financing model -, and the worst week for the Dow since 2011, the Thomson Reuters/UofMichigan consumer sentiment index shows American consumers are more optimistic than they’ve been in 8 years, and that “more consumers volunteered good news than bad news than in any month since 1984”? 1984! How does one trump that as a contrarian signal? And that I don’t mean to sound funny: that is serious.

Of course it says something too about US media and their incessant messages about how well everything is going and how we’ve passed that corner the recovery was always just around, and what a boon the falling oil prices will be to spending over the holidays, and even if sales instead fell over Thanksgiving; surely that’s only because people were saving up their newly found extravaganza for the Christmas season. And obviously the Fed-sponsored distortions of all asset prices on the planet, homes, stocks, you name it, have a lot to do with stoking that optimism as well.

But the feat stands on its own two feet just as much. Americans are not just behind the curve, they positively confirm a top has been reached. If ever you needed a sign, here it is: “Their expectations run quite counter to recent price data.” That’s from Jason Lange for Reuters, but before he gets around to that, check out what some of the experts he cites have to say:

Pessimism and doubt have dominated how Americans see the economy for many years. Now, in a hopeful sign for the economic outlook, confidence is suddenly perking up. Expectations for a better job market helped power the Thomson Reuters/University of Michigan index of consumer sentiment to a near eight-year high in December, according to data released on Friday.

U.S. consumers also saw sharp drops in gasoline prices as a shot in the arm, and the survey added heft to strong November retail sales data that has showed Americans getting into the holiday shopping season with gusto. “Surging expectations signal very strong consumption over the next few months,” said Ian Shepherdson, an economist at Pantheon Macroeconomics.

While improvements in sentiment haven’t always translated into similar spending growth, consumers at the very least are feeling the warmth of several months of robust hiring, including 321,000 new jobs created in November. When asked in the survey about recent economic developments, more consumers volunteered good news than bad news than in any month since 1984, said the poll’s director, Richard Curtin.

Moreover, half of all consumers expected the economy to avoid a recession over the next five years, the most favorable reading in a decade, Curtin said. The data bolsters the view that the U.S. economy is turning a corner and that worker wages could begin to rise more quickly, laying the groundwork for the Federal Reserve to begin hiking its benchmark interest rate to keep inflation from eventually rising above the Fed’s 2% target.

Overall, the sentiment index rose to a higher-than-expected 93.8, mirroring levels seen in boom years like 1996 and 2004. Many investors see the Fed raising rates in mid-2015, and policymakers will likely debate at a meeting next week whether to keep a pledge that borrowing costs will stay at rock bottom for a “considerable time.” Consumers see faster inflation ahead. Over the next year, they expect a 2.9% increase in prices, up from 2.8% in November, according to the sentiment survey.

Their expectations run quite counter to recent price data. The Labor Department said separately its producer price index dropped 0.2% last month, brought lower by falling gasoline prices. Prices were soft even excluding the drag from gasoline. U.S. stocks briefly cut losses after the buoyant sentiment data but stayed lower on the day as investors fretted about declining oil prices and what that said about global demand.

Inflation has been below 2% for most of the last two years, and falling gas prices could drive it even lower. Partly because of cheaper gas, the Consumer Price Index was unchanged in October from the previous month. Compared with 12 months earlier, consumer prices were up just 1.7%.

I think maybe I should just leave it at this. The American consumer has spoken, and (s)he’s called a top. Whether that’s just the top in consumer sentiment or also one in the stock markets, let’s see, but I lean towards thinking both is a realistic option, because of the way energy credit fell to pieces in no time. It looks like a harbinger for a – much – wider segment of the economy, and it feels like something’s profoundly broken.

Marc Chandler says what I have said: it’s not about the energy, it’s about the financing. Which is vanishing from the shale patch. “The big risk now to our shale is not going to be that the price of oil drops so far that it’s not going to be profitable,” he said. “The weakness, the Achilles’ heel, is that they don’t get the cheap funding anymore.”

Six years ago, the theories of economist Hyman Minsky were used to make sense of the collapse in housing prices, and its attendant effects on the economy. Today, Marc Chandler says the energy sector has just suffered its own Minsky moment. And while he doesn’t expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market. Minsky moment is a term coined by Pimco economist Paul McCulley in 1998, and it refers to a point when a period of rapid growth and risk-taking leads to a sudden turn lower and a crisis. Chandler, global head of markets strategy at Brown Brothers Harriman, says that is precisely what is happening in crude oil. “Many people a couple years ago, a year ago, were saying that oil prices could only go up—’we’re in peak oil’—meaning that we’re running out of the stuff. So a lot of things were leveraged based on oil prices that can only go up. Sort of like house prices—’they can only go up.’ So what happened is, because people held this as a deep conviction, they leveraged up,” Chandler said.”

In fact, the energy sector has borrowed $90 billion in the high-yield market since 2008, Chandler said, making energy producers “a large component of the high-yield market itself.” The problem is that “a lot of the loans, like loans on houses, were made not so much on a person’s ability to repay the loan as on the value of the house. Similarly, the banks and investors bought high-yield bonds or leveraged loans on the energy sector not on the basis of their ability to repay it, but on the value of the oil in the ground.” And so what happens now that crude oil has fallen nearly 40% from its June highs? Chandler foresees both further consolidation (along the lines of Halliburton’s acquisition of Baker Hughes) and failures ahead as the cheap financing dries up. “The big risk now to our shale is not going to be that the price of oil drops so far that it’s not going to be profitable,” he said. “The weakness, the Achilles’ heel, is that they don’t get the cheap funding anymore.” Or, to use a more modern metaphor: “This is sort of when Wile E. Coyote runs off the cliff.”

“[When] an individual fills up their automobile, there is not an extra $10 bill that shows up in their wallet, therefore, the incentive to spend really is not recognized and the ‘savings’ get washed within already tight consumer budgets ..”

Cheap oil is awesome, right? Most economists describe it as a sort of tax cut for Americans at the gas pump. Even Larry Fink, a hot-shot Wall Street money manager, declared oil’s decline “spectacular.” “This is an incredible tax cut for Americans and everywhere else around the world,” Fink told CNBC Wednesday, referring to the startling plunge oil has seen in recent weeks. The cheap oil argument goes like this: consumers and businesses save in heating costs and in fueling their cars and those savings will be spent on discretionary items, fueling consumption. A recent article in the Washington Post indicated that Americans would pocket a $230 billion windfall, if prices stay at their current levels, compared to where they were in June.

However, some financial experts argue that a decline in oil isn’t all that it’s cracked up to be. In fact, it could be a bad omen for the U.S. economy. Lance Roberts, Strategist for STA Wealth Management, said the idea that declining energy prices are good for the economy is wrong. “[When] an individual fills up their automobile, there is not an extra $10 bill that shows up in their wallet, therefore, the incentive to spend really is not recognized and the ‘savings’ get washed within already tight consumer budgets,” Roberts argued. It’s often noted that consumer spending accounts for about two-thirds of gross domestic product. But Roberts pointed out that history does not seem to support the idea that lower gasoline prices, and other cheaper energy costs, lead to higher consumer spending, as the following chart shows:

In fact, as Roberts attempted to illustrate in the chart below, sharp declines in energy prices have actually “been coincident with lower economic growth rates,” as he termed it. In other words, falling oil prices have typically been a harbinger of difficult economic times to come. Think of oil prices as a measure of the global economy’s blood pressure. While there has been a production glut, the strengthening dollar has also contributed to the dramatic drop in oil prices — and that rapidly rising dollar is a function of weakness elsewhere, particularly in Europe and Asia.

Brent extended losses from a four-year low as Saudi Arabia offered customers in Asia record discounts on its crude, bolstering speculation it’s defending market share. West Texas Intermediate dropped in New York. Futures fell as much as 0.8% in London and are headed for a second weekly decline. State-run Saudi Arabian Oil Co. cut its differential for Arab Light sales to Asia next month to $2 a barrel below a regional benchmark, according to a company statement. That’s the lowest in at least 14 years. The kingdom doesn’t want to subsidize Iran, Iraq and Venezuela and is willing to let the market decide prices, said Daniel Yergin, an energy analyst and Pulitzer Prize-winning author.

Crude slumped 18% last month as the Organization of Petroleum Exporting Countries maintained its output quota, letting prices decrease to a level that may slow U.S. production. Saudi Arabia has no price target and will let the market decide at what level oil should trade for now, said a person familiar with its policy. “It seems what the Saudis want, the Saudis are going to get,” Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said by e-mail today. “We’re going to see prices continue to be under pressure. It is still game on.”

Collapsing crude prices have given oil producers a new argument for ending a 39-year-old U.S. ban on exports. With U.S. output at a 31-year high and imports at the lowest level since 1995, producers seeking the best possible price for crude are straining at having to keep sales at home. Removing the ban could erase an imbalance between U.S. and foreign crude prices by expanding the market for shale oil. A 38% decline in crude prices since June, “will weigh into the debate” and help make the case to lift the export ban, said Senator Lisa Murkowski, the Alaska Republican poised to take over as head of the Energy and Natural Resources Committee next year. Lawmakers in Washington are set to hold a hearing next week on dropping the ban. Murkowski hasn’t decided yet whether she’ll introduce a bill to allow exports.

Republicans, who are slated to take control of both houses of Congress next year, have yet to reach consensus on what to do. The top House and Senate Republicans haven’t yet taken a position on the matter and some rank-and-file members, including Senator Susan Collins of Maine, say they are wary of action because of fears it may lead to higher gasoline and heating-oil prices. President Barack Obama’s former top economic adviser Lawrence Summers called for ending the ban in September after the Brookings Institution, a Washington policy group, released an analysis showing that exports would lower gasoline prices. White House Press Secretary Josh Earnest declined to say yesterday whether lifting the ban was being discussed or considered by the administration.

With falling oil prices, these projects loook ever more megalomaniacal. “Backers of LNG projects in British Columbia face higher costs than Gulf Coast proponents such as Sempra Energy because of the pipelines required across two Canadian mountain ranges, the lack of existing infrastructure on the Pacific Coast and negotiations with aboriginals.”

Petroliam Nasional’s deferred decision on a C$36 billion ($32 billion) liquefied natural gas project in British Columbia is bringing to the fore Canada’s struggle to compete with the U.S. on costs. Petronas, as the Malaysian state-owned producer is known, is pushing contractors to bring costs closer in line with U.S. rivals as it tries to keep the first exports to Asia on track to start by 2019, Michael Culbert, chief executive officer of the Pacific NorthWest LNG project, said. “We’ve got real competition that is coming out of the Gulf Coast projects,” Culbert said by phone yesterday, estimating U.S. suppliers can deliver LNG to Asia for $1 to $2 less per million British thermal units than Canadian projects. “With the changing oil prices, contractors may not be as busy as they thought they would be.” While U.S. terminals are already being built, none of the proponents in Canada have decided to proceed. Pacific NorthWest LNG would be the country’s first large project to come online among a handful put forward by Shell to Chevron.

Petronas joined BG Group in pushing back a decision on its plans in Canada as oil trades close to five-year lows. BG cited competition from U.S. supplies when it deferred its decision in October. Backers of LNG projects in British Columbia face higher costs than Gulf Coast proponents such as Sempra Energy because of the pipelines required across two Canadian mountain ranges, the lack of existing infrastructure on the Pacific Coast and negotiations with aboriginals. U.S. projects have caught up to Canadian rivals that received export approvals to start lining up buyers earlier and are now passing them by. Gulf Coast proponents adding export capabilities to existing LNG import terminals need less new equipment and have access to a network of pipelines already linked to vast supplies of gas in shale formations, as well as a larger labor pool.

The European Central Bank has dashed hopes for quantitative easing this year and acknowledged for the first time that the institution’s elite board is split on plans for a €1 trillion liquidity blitz. Equity markets fell across southern Europe,with Italy’s MIB off 2.77pc, led by sharp falls in bank stocks. Spain’s IBEX dropped 2.35pc. The euro surged by more than 1pc to $1.2455 against the dollar in early trading as speculators rushed to cover short positions. Expectations for immediate stimulus had been riding high after the ECB’s president, Mario Draghi, pledged action “as fast as possible” last month. The bank slashed its forecasts for economic growth to 1pc next year, and admitted that inflation will remain stuck at just 0.7pc, a combination that traps large parts of southern Europe in deflationary slump and corrodes debt dynamics. BNP Paribas said eurozone inflation is likely to average 0pc in 2015, after turning negative this month.

“The ECB’s measures are woefully behind the curve,” said Ashoka Mody, a former EU-IMF bailout chief now at the Bruegel think-tank in Brussels. “For anyone who wants to see it, a debt-deflation cycle is ongoing in the distressed economies. The authorities have very nearly lost control of a process that will become ever harder to manage as it becomes more entrenched,” he said. Mr Mody said the ECB repeatedly asserts that it will act “if needed” but declines to spell out what that means and why it continues to delay when the inflation level – now 0.3pc – is already so far below target. “Cheap talk is a legitimate policy tool. But talk can also create a cognitive bubble,” he said. Mr Draghi denied that the ECB is complacent about the deflation risk or that is succumbing to paralysis. “Let me be absolutely clear. We won’t tolerate prolonged deviation from price stability,” he said.

Yet he pleaded for more time to study the effects of the oil price crash and gave a strong hint that there would be no further decisions on monetary stimulus until after the next meeting in January. The governing council discussed possible purchases of every major asset “other than gold” but has not yet agreed to go beyond the current mix of covered bonds and asset-backed securities. “The credibility of the ECB lies in tatters. It’s now patently clear that Draghi lacks the crucial German support for launching full-blown QE,” said sovereign bond strategist Nicolas Spiro. Mr Draghi insisted that the bank could in principle ram through the QE decision by majority vote but said he was “still confident” that a package of measures could be designed to keep everybody on board.

Former Federal Reserve Chairman Alan Greenspan, who was blamed by some economists for overheating equity and housing prices in the 1990s and 2000s, said that were he in the job today, he would take pre-emptive action to tackle asset bubbles if they were financed by leverage. Greenspan, who argued in office that it was better to clean up after an asset bubble had burst rather than artificially prick it, told delegates at a conference hosted by Citigroup Inc. in London today that he believed that argument is correct when a speculative boom isn’t financed by debt, mentioning the 1987 stock market crash as an example. If the overheating was caused by leverage, however, “then you’re going to have problems,” he said. “Bubbles are aspects of human nature and you can try as hard as you like, you will not alter the path,” Greenspan told the audience at Citigroup’s European Credit Conference via a video link from Washington.

“I still hold to the general view that unless you have debts supporting the bubble, I would just let it alone because certain things about human nature cannot be changed and I’ve come to the conclusion this is one of them.” The former Fed chairman, who warned against “irrational exuberance” in stock markets as early as 1996, was faulted by some economists for not using higher borrowing costs to prevent equity prices from rising before the bursting of the so-called tech bubble in 2000. He cut interest rates afterwards to “mop up” the damage, which some analysts said led to an overheating in the housing market that partly caused the financial crisis. Greenspan remained unapologetic about the tech bubble, saying in a December 2002 speech that central banks had “little experience” in dealing with market bubbles and that “dealing aggressively with the aftermath of a bubble” was “likely to avert long-term damage.”

Commentary was ablaze Thursday over new data suggesting China now makes up a larger portion of the world economy than the U.S., or at least when adjusted to reflect purchasing power. The numbers — published by the International Monetary Fund — had folks from Nobel laureate economist Joseph Stiglitz to MarketWatch columnist Brett Arends declaring the end of the U.S. as the top economic power, while others such as Harvard professor and former Clinton Administration advisor Jeffrey Frankel, argued that America was still on top. But while most economic analysis would still put the U.S. comfortably atop the world rankings, HSBC economist Frederic Neumann said that the real lesson of the IMF data was that China, and emerging Asia as a whole, has become more crucial to the global economy.

In a report Friday, Neumann noted that if you adjust this year’s gross domestic product data for purchasing parity (smoothing out foreign-exchange differences by making the price of products the same in each country), not only is China bigger than the U.S., but the emerging economies of Asia would be bigger than those of the U.S. and euro zone combined. “But that’s not necessarily the right measure to look at to gauge a market’s importance to the world,” Neumann wrote. “Here, international purchasing power matters, and that is best captured by looking at GDP in U.S. dollars.” In other words, an economy’s influence must be measured by what it’s worth globally, not just in its own currency. So if you look at nominal dollar-denominated GDP, the U.S. makes up 22% of the world’s total, while the euro zone is 17%, and China is 11%. “But that’s not to dismiss the growing importance of Asia,” the HSBC economist wrote. “For one, emerging Asia’s combined U.S.-dollar GDP will pull equal to that of the U.S. for the first time this year.”

Stagnant wage growth in developed countries has pulled average global earnings lower and is in danger of dragging economic performance down, according to the International Labour Organization (ILO). In its latest report published Friday, the ILO said that global wage growth in 2013 slowed to 2%, from 2.2% the year before. As such, pay growth has a significant way to go before it reaches its pre-crisis level of around 3%. The average rate was pulled down by stagnant pay in developed countries, the organization said. Annual wage growth in these economies had been around 1% since 2006, but fell to just 0.1% in 2012, and 0.2% in 2013. Wage growth in developed countries was hit hard by the recent economic crisis, which saw employers become reluctant to increase workers’ pay. Over the past few years, as nascent recoveries took hold in major economies including the U.S. and U.K., pay increases have lagged broader economic growth.

It’s an issue that will be in focus on Friday, when the U.S.’s non-farm payrolls numbers are released. The unemployment rate is expected to be unchanged at 5.8%, according to Reuters, but analysts are hoping for a slight increase in wages – a key measure for the Federal Reserve in considering when to raise interest rates. “Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some,” Sandra Polaski, the ILO’s deputy director-genera for policy, said in a release. “This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the euro zone.” By contrast, pay growth in emerging countries has stormed ahead over the last two years, according to the ILO, coming in at 6.7% and 5.9% in 2012 and 2013 respectively.

British workers suffered the biggest fall in real wages of all major G20 countries in the three years to 2013, according to the International Labour Organisation (ILO). They fared worse in terms of falling real pay than all of the bailed-out eurozone economies – Portugal, Spain and Ireland – apart from Greece. Wages in Japan and Italy also fell over the period but at a slower rate than in the UK, while real terms pay increased in the US, France, Germany, Canada and Australia. Patrick Belser, senior economist at ILO and author of the report, said: “In the UK in 2008 there was some positive growth of real wages whereas some other countries had stagnant or declining wages – such as Japan. Then what you see subsequently is a continuous fall in wages to 2013. We expect wages to be at best flat this year, and they will most likely decline.”

The biggest fall in UK wages adjusted for inflation came in 2011, when they fell by 3.5%. In Italy, which was one of the countries hit hardest by the eurozone crisis, real pay fell by only 1.9%. Last year real UK pay fell by 0.3% according to the ILO, compared with a 2% increase globally. Real wages in the UK have fallen consistently since 2008, with inflation outpacing pay rises an economic recovery and recent rapid falls in unemployment. In the UK, but also in Greece, Ireland, Italy, Japan and Spain, average real wages in 2013 remained below their 2007 level. Belser said weak productivity was part of the story in the UK. The Bank of England said in its latest quarterly inflation report last month that recent employment growth had been concentrated among young, lower-skilled and lower-paid workers, which was probably dragging down average wage growth. Weaker-than-expected pay growth in Britain has also generated lower than expected tax revenues for the government, which in turn has slowed deficit reduction.

The plans set out by George Osborne in the Autumn Statement on Wednesday will require government spending cuts “on a colossal scale” after the election, an independent forecaster has warned. The Institute for Fiscal Studies (IFS) said just £35bn of cuts had already happened, with £55bn yet to come. The detail of reductions had not yet been spelled out, IFS director Paul Johnson said. As a result, he said it would be wrong to describe them as “unachievable”. However, voters would be justified in asking whether the chancellor was planning “a fundamental reimagining of the role of the state”, Mr Johnson told a briefing in central London on Thursday.

If reductions in departmental spending were to continue at the same pace after the May 2015 election as they had over the past four years, welfare cuts or tax rises worth about £21bn a year would be needed by 2019-20, at a time when the Conservatives were committed to income tax cuts worth £7bn, according to the IFS. Mr Johnson added: “One thing is for sure – if we move in anything like this direction, whilst continuing to protect health and pensions, the role and shape of the state will have changed beyond recognition.”

Taxpayers’ money could be channelled directly into North Sea oil exploration under a scheme announced to the industry in Aberdeen on Thursday by Danny Alexander, chief secretary to the Treasury. The promise to give financial support for seismic surveys was one of a number of tax and other benefits proposed by the government in an attempt to halt a collapse in exploration and remedy a fall in production. The moves were welcomed by the offshore industry but criticised by environmentalists as “environmental and economic illiteracy of the highest order”. Alexander said it was right to give targeted support to Scotland’s oil and gas industry building on tax reductions and other moves made in the autumn statement on Wednesday.

“We’re incentivising and working with the industry to develop new investment opportunities and support new areas of exploration. This will help ensure that the industry continues to thrive and contribute to the economy,” he explained. Other North Sea countries including Norway and Holland provide seismic incentives but they are new in the UK. Mike Tholen, economics and commercial director at lobby group Oil & Gas UK, said the allocation was expected to be a few millions of pounds rather than billions and to be matched by companies. It would be targeted at areas that would otherwise not be explored. “It is small beer financially but it is important because it is government putting its money where its mouth is,” he said.

Friends of the Earth said it was extraordinary that the government was trying to squeeze as much oil out of the North Sea as it could while the international community was trying to agree a plan during world climate talks in Lima, Peru to head off the threat of catastrophic climate change. Craig Bennett, the organisation’s policy and campaigns director, said: “This is environmental and economic illiteracy of the highest order. Ministers must end their obsession with dirty fossil fuels and build a clean economy for the future based on energy efficiency and the nation’s huge renewable power resources.”

With Russia and Ukraine for neighbors, Poland’s economy is feeling the heat from the geopolitical crisis but government officials said insist the country was a bright spot in a bad neighborhood and that the euro zone was more of a concern than Russia. “Sanctions are felt across the board, exports to Ukraine are down 25% and to Russia they’re down 10%,” Krzysztof Rybinski, the former deputy governor of the Polish Central Bank, told CNBC Friday. “But I don’t think investors will pull the plug on Poland unless Russia does something really unpredictable.” For Poland the euro zone slowdown was more of a worry. “For the Polish economy it’s much more important what happens in the west, if there is no growth, stagnation and recession in the west it will take us down with the situation.

Russia and Ukraine together are only about 7.5% of Polish exports – that’s significant but not as much as (our exports to) Germany.” Sanctions in Russia and the conflict in Ukraine, coupled with sluggish growth in the euro zone have had a “chilling” effect on Central Eastern Europe, with Poland no exception. Despite credit rating agency Moody’s saying that Poland’s economy had shown “resilience in times of stress” the country’s gross domestic product has declined. The economy grew by 2.0% in 2012, but grew 1.6% last year, according to EU statistics service Eurostat. Rybinski said there had been some positive effects of the sanctions on Russia, however. “We have many Ukrainian young people flowing through the border to Polish universities, this is a positive effect of sanctions. Other positive effects are that the zloty (the Polish currency) is not very strong which is helping Polish exporters,” he said.

Euro zone ministers are considering extending Greece’s bailout by six months to mid-2015, according to a document obtained by Reuters, but Athens said it was only willing to consider an extension of a few weeks to the unpopular program. Extending the program beyond a few weeks into the new year would complicate Prime Minister Antonis Samaras’ efforts to secure victory for his preferred candidate in a presidential vote in February. He had depended on exiting the EU/IMF bailout by the end of the year, when funding from the EU is due to end. “Greece has not received any written proposal on an extension,” a government official told Reuters. “In any case, everything that the prime minister and Finance Minister (Gikas) Hardouvelis has said stands – that Greece can discuss only a technical extension, which cannot be longer than a few weeks.”

An extension of the bailout, under which Athens will have received a total of €240 billion ($300 billion) since 2010, is necessary because international lenders and the Greek government are still negotiating what Athens must do to get the remaining €1.8 billion and secure a back-up credit line for after the bailout ends and Greece returns to market financing. Athens needed to wrap up its bailout review by a meeting on Dec. 8 of euro zone ministers to meet the timeline for exiting by the end of the year. But the talks have been held up by a row over a budget shortfall next year, and a senior euro zone official on Wednesday said Greece would have to ask for an extension on its bailout because a credit line to replace the program will not be ready in time. Euro zone officials are now urging the country to reach a deal by Dec. 14, a Greek finance ministry official said.

Japan’s Government Pension Investment Fund is considering whether to overhaul its $389 billion of stock investments by loosening rules that restrict managers to domestic or international equities. A month after the $1.1 trillion pool unveiled plans to more than double local and foreign share targets so that each makes up 25% of assets, Takahiro Mitani, its president, said separating the world into Japan and everywhere else may not be the best approach. GPIF should consider letting some of its managers invest both at home and abroad, he said. “More funds are investing without discriminating between domestic and foreign, and I think that’s worth considering,” Mitani, 65, said in an interview in Tokyo on Dec. 3. “If choosing between Toyota and Volkswagen, instead of being limited to just Toyota and Nissan, raises investment performance and efficiency, it’s an option we mustn’t rule out.”

The California Public Employees’ Retirement System, the biggest U.S. public pension, makes no distinction between local and foreign holdings. Calpers, which oversees about $295 billion, has a 51% target for public equities, according to its website. GPIF’s stock investments were parceled out to managers in 45 different pieces as of March 31, according to the fund’s annual report. The Topix index rallied 8.4% since GPIF announced the investment strategy changes on Oct. 31. The Bank of Japan unexpectedly expanded its bond buying to 80 trillion yen ($666 billion) a year on the same day, as it targets annual inflation of 2%. The extra purchases helped drive yields on benchmark 10-year notes down by 3.5 basis points to 0.435% yesterday, after touching a more than 1 1/2-year low at the end of November. The Topix rose 0.4% at today’s close to extend a seven-year high. The yen fell 0.3% to 120.01 per dollar.

GPIF would have to revise its systems to allow one manager to invest across Japanese and non-domestic shares, Mitani said. Alternatively, it could create a new global stock class on top of the existing ones, he said. The fund is due to review foreign equity managers in about 18 months, according to Mitani, who said he plans to retire when his five-year term finishes at the end of March.

[The BOJ’s] relentless bid has driven yields to near zero, now increasingly for longer-dated maturities as well. In this process, the Bank of Japandemonium, as I’ve come to call it, has tightened its iron grip on the government bond market to where the market ran out of air and died. Takeshi Fujimaki, an opposition lawmaker, explained the phenomenon this way:

The BOJ used consumer prices as an excuse to add stimulus and continues to hide that it’s monetizing government debt. But the truth is that Japan will default unless the BOJ continues to buy JGBs even after inflation accelerates beyond its intended target.

Alas, to monetize ever larger portions of government debt, the BOJ is selling freshly printed yen into a market it can manipulate but not control: the global currency market. Once big players around the world start dumping the yen, and once scared Japanese folks start dumping their yen too, the yen might do what the ruble is doing now: spiraling down uncontrollably. When Abenomics became a noun in late 2012, it took ¥75 to buy $1. Today it takes ¥120. With the effect that 37% of Japan’s yen-denominated wealth has gone up in smoke. But once the BOJ decides that the yen has fallen enough, it might not be able to stop its fall. It would have to sell its international reserves and buy yen – the opposite of QE.

If it decided to buy yen, instead of printing yen, to prop up the currency, it would thereby surrender control over the government bond market. The relentless bid would disappear even as the flood of new JGBs would continue. There would be no other buyers, not with yields at near zero. Chaos would break out instantly. The BOJ might try for a minute or two, and it might try to talk up the yen, but it can’t actually prop up the yen with yen purchases without causing JGBs to spiral out of control, which it would never allow to happen. It would never allow a debt crisis to throw Japan into chaos. Instead, it will continue to guarantee the nominal value of the debt by buying up every JGB that comes on the market, while keeping yields at near zero. And to heck with the yen. Fujimaki sees ¥200 to the dollar.

A while ago U.S. banking regulators announced guidelines to prevent banks from making loans to companies at more than six times Ebitda, because the regulators thought those loans were too risky. More recently those regulators have announced, roughly once a week, that they intend to enforce those rules, but for real this time. Here is a Wall Street Journal story about how private-equity firms – whose buyouts tend to be funded by leveraged loans – are adapting to those rules. Here is one funny way to adapt:

Private-equity firms have used adjustments in their models that contribute to a company’s earnings, thereby decreasing the leverage ratio and lifting a company’s future cash flow, a measure regulators use to calculate a company’s ability to repay debt. Vista Equity Partners adjusted Tibco Software’s Ebitda for the 12 months to Aug. 31 by 58%, to $378 million, from Tibco’s own calculation of $239 million.

This is an admirable strategy: If you want to borrow 8.5 times as much money as you make in a year, then that’s bad. One way to fix that is to borrow less money, but that is no fun. Another way to fix it is to make more money, but that is hard. A third way to fix it is to cross out the number of dollars that you make in a year and write a different number, and, boom, now you are borrowing 5.3 times Ebita. (Yes yes yes Vista “factored in cost savings” that the buyout would generate.) I don’t know how popular that strategy is.

The more interesting adaptation strategy is direct syndication. The thing is, most leveraged loans don’t come from banks. When a company does a leveraged loan, a bank will normally arrange the loan, and lend some of the money, but typically most of the money will come from other investors: hedge funds, mutual funds, collateralized loan obligations, etc.3 In the modern leveraged-loan market — much like in the stock and bond markets — banks are mostly intermediaries, matching companies that want to borrow with investors who want to lend. Those investors can still lend. The banks can’t. (I mean, they can, but the regulators will make sad faces at them.) But statistically the banks weren’t lending that much anyway. They were calling up the investors who were actually lending, but banks don’t have a monopoly on telephones.

President Vladimir Putin has warned Russians of hard times ahead and urged self-reliance, in his annual state-of-the nation address to parliament. Russia has been hit hard by falling oil prices and by Western sanctions imposed in response to its interventions in the crisis in neighbouring Ukraine. The rouble, once a symbol of stability under Mr Putin, suffered its biggest one-day decline since 1998 on Monday. The government has warned that Russia will fall into recession next year. Speaking to both chambers in the Kremlin, Mr Putin also accused Western governments of seeking to raise a new “iron curtain” around Russia. He expressed no regrets for annexing Ukraine’s Crimea peninsula, saying the territory had a “sacred meaning” for Russia.

He insisted the “tragedy” in Ukraine’s south-east had proved that Russian policy had been right but said Russia would respect its neighbour as a brotherly country. Speaking in Basel in Switzerland later, US Secretary of State John Kerry said the West did not seek confrontation with Russia. “No-one gains from this confrontation… It is not our design or desire that we see a Russia isolated through its own actions,” Mr Kerry said. Russia could rebuild trust, he said, by withdrawing support for separatists in eastern Ukraine.

Finland is a nice place to be if you work in the public sector. But laws that protect municipal workers from the hard reality of a faltering economy are adding to the debt burden in a country that had its credit rating cut just two months ago. In some towns, no public-sector staff can be fired until as late as 2022. Meanwhile, Finnish local government debt has tripled to €16.3 billion ($20 billion) since 2000. It will grow by another €10 billion by 2018, the Finance Ministry estimates. “The government and municipalities have the same problem: the income base has collapsed while expenses have continued to grow,” Anssi Rantala, chief economist at Aktia Bank Oyj, said by phone. As more people retire than join the workforce, Finland’s recession shows no sign of easing.

Prime Minister Alexander Stubb has described the country’s plight as a “lost decade” as manufacturing fails to spur growth for a third consecutive year. Adding to the country’s woes is the economic pain spreading through its eastern neighbor as exports to Russia collapse. In October, Standard & Poor’s cut Finland to AA+ from AAA as the state’s debt exceeds the 60% limit to gross domestic product permitted inside the European Union. As the government struggles to squeeze more competitiveness out of its labor force, existing laws are hampering its efforts. Many municipal employees enjoy a five-year immunity in case their town is merged with another. Among Finland’s 320 towns, the smallest ones may merge several times – giving those workers another five years of job protection each time.

The Vatican’s economy minister has said hundreds of millions of euros were found “tucked away” in accounts of various Holy See departments without having appeared in the city-state’s balance sheets. In an article for Britain’s Catholic Herald Magazine to be published on Friday, Australian Cardinal George Pell wrote that the discovery meant overall Vatican finances were in better shape than previously believed. “In fact, we have discovered that the situation is much healthier than it seemed, because some hundreds of millions of euros were tucked away in particular sectional accounts and did not appear on the balance sheet,” he wrote. “It is important to point out that the Vatican is not broke … the Holy See is paying its way, while possessing substantial assets and investments,” Pell said, according to an advance text made available on Thursday.

Pell did not suggest any wrongdoing but said Vatican departments had long had “an almost free hand” with their finances and followed “long-established patterns” in managing their affairs. “Very few were tempted to tell the outside world what was happening, except when they needed extra help,” he said, singling out the once-powerful Secretariat of State as one department that had especially jealously guarded its independence. “It was impossible for anyone to know accurately what was going on overall,” said Pell, head of the new Secretariat for the Economy that is independent of the now downgraded Secretariat of State. Pell is an outsider from the English-speaking world transferred by Pope Francis from Sydney to Rome to oversee the Vatican’s often muddled finances after decades of control by Italians.

Pell’s office sent a letter to all Vatican departments last month about changes in economic ethics and accountability. As of Jan. 1, each department will have to enact “sound and efficient financial management policies” and prepare financial information and reports that meet international accounting standards. Each department’s financial statements will be reviewed by a major international auditing firm, the letter said. Since the pope’s election in March, 2013, the Vatican has enacted major reforms to adhere to international financial standards and prevent money laundering. It has closed many suspicious accounts at its scandal-rocked bank. In his article, Pell said the reforms were “well under way and already past the point where the Vatican could return to the ‘bad old days’.”

Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans – doled out by banks to subprime borrowers and then resold numerous times on international debt markets – began to unravel and default? Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices. Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June. “A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

Five years ago at the beginning of what has become known as the US shale oil revolution, drillers started to load up on debt to fund their operations and acquire new acreage as vast areas of North America started to open up for exploration. In 2010, energy and materials companies made up just 18pc of the US high-yield index – which tracks sub-investment grade borrowers – but today they account for 29pc of the measure after drilling firms spent the past five years borrowing heavily to underwrite the operations. The result of this debt splurge has been a spectacular rise in US oil and gas output. Latest estimates suggest that by the end of the decade the US will have outstripped even Saudi Arabia and Russia in terms of oil production. The development of new shale resources in North America and the opening up of fields in the Arctic seas off Alaska could see the country pumping 14.2m barrels per day (bpd) of oil and petroleum liquids by 2020, up from 7.5m bpd in 2013.

This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries (Opec). It’s a battle the US oil fracking companies won’t win.

It is possible that a miracle intervenes and that the price of oil bounces off and zooms skyward. We’ve seen stocks perform these sorts of miracles on a routine basis, but when it comes to oil, miracles have become rare. As I’m writing this, US light sweet crude trades at $76.90 a barrel, down 26% from June, a price last seen in the summer of 2010. But this price isn’t what drillers get paid at the wellhead. Grades of oil vary. In the Bakken, the shale-oil paradise in North Dakota, wellhead prices are significantly lower not only because the Bakken blend isn’t as valuable to refiners as the benchmark West Texas Intermediate, but also because take-away capacity by pipeline is limited.

Crude-by-rail has become the dominant – but more costly – way to get the oil from the Northern Rockies to refineries on the Gulf Coast or the East Coast. These additional transportation costs come out of the wellhead price. So for a particular well, a driller might get less than $60/bbl – and not the $76.90/bbl that WTI traded for at the New York Mercantile Exchange. Fracking is expensive, capital intensive, and characterized by steep decline rates. Much of the production occurs over the first two years – and much of the cash flow. If prices are low during those two years, the well might never be profitable. Meanwhile, North Sea Brent has dropped to $79.85 a barrel, last seen in September 2010.

So the US Energy Information Administration, in its monthly short-term energy outlook a week ago, chopped down its forecast of the average price in 2015: WTI from $94.58/bbl to $77.55/bbl and Brent from $101.67/bbl to $83.24/bbl. Independent exploration and production companies have gotten mauled. For example, Goodrich Petroleum plunged 71% and Comstock Resources 58% from their 52-week highs in June while Rex Energy plunged 65% and Stone Energy 54% from their highs in April. Integrated oil majors have fared better, so far. Exxon Mobil is down “only” 9% from its July high. On a broader scale, the SPDR S&P Oil & Gas Exploration & Production ETF is down 28% from June – even as the S&P 500 set a new record. So how low can oil drop, and how long can this go on?

President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices. Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said. Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.

Even the central bank’s forecast of zero growth next year may be in danger as the International Energy Agency forecasts a deepening rout in oil prices as the market enters a period of weaker demand. Brent crude, the grade traders look at for pricing Russia’s Urals main export blend, has collapsed into a bear market as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and U.S. output climbed to the highest level in three decades because of the shale boom. Brent is heading for its eighth weekly decline after sliding below $80 for the first time in four years. Futures were at $78.29 a barrel in London today, down 6.1% this week and 29% this year.

By way of events on the foreign side, the past few weeks start to resemble some once-in-a-while event in the heavens when everyone is supposed to go out and watch as the sun, moon and stars align. There are lots of things happening, and if we put them all together, the way Greek shepherds imagined constellations, a picture emerges. Time to draw the picture. The situation on the ground in Ukraine is getting messy again. Equally, events of the past year now leave Ukraine’s economy not far from sheer extinction. You have not read of this because it does not fit the approved story, but Ukraine’s heart barely beats. Further east, we hear in the financial markets that the ruble’s decline brings Russia to the brink of another financial collapse. Let’s see. Oil prices are now below $80 a barrel. It costs me nearly $20 less to put gasoline in my car than it did a year ago, and good enough. But why has the price of crude tumbled in so short an interval? It makes little sense when you gather the facts, and – goes without saying – you get no help with that from our media.

Let’s keep on trucking. Secretary of State Kerry went to Oman for another round of talks on the Iranian nuclear question last weekend. Russia recently emerged as a potentially key part of a deal, which will be the make-or-break of Kerry’s record. In effect, he now greets Russian Foreign Minister Sergei Lavrov with one hand and punches him well below the belt with the other. Somewhere beyond our view this must make sense. En avant! Obama went to Beijing last week for a sit-down with Xi Jinping, who makes Vladimir Putin look like George McGovern when he wants to, which is not infrequently. Still in the Chinese capital, our president then attended a meeting with other Asian leaders to push a trade agreement, one primary purpose of which is to isolate China by bringing the rest of the region into the neoliberal fold. (Or trying to. Washington will never get the overladen, overimposing Trans-Pacific Partnership off the ground, in my view.)

A big item on Xi’s agenda — he was in on the Pacific economic forum, too — was the recent launch of an Asians-only lending institution intended to rival the Asian Development Bank, the World Bank affiliate doing the West’s work in the East. Being entirely opposed to people helping themselves advance without American assistance and all that goes with it, Washington used all means possible to sink this ship. When Obama got off the plane in Beijing, the Asian Infrastructure Investment Bank had $50 billion in capital and 20 members, more to come in both categories. Xi, meantime, had a productive encounter — another — with the formidable Vlad. My sources in attendance tell me both put in strong performances. In short order, Russia will send enough natural gas eastward to meet much of China’s demand and — miss this not — in the long run could price out American supplies in other Pacific markets, which are key to the success of the current production boom out West.

This is a lot of dots to connect. As I see it, the running themes in all this are two: There is constructive activity and there is the destructive. Readers may think this oversimplifies, but for this there is the ever-lively comment box below. I am willing to listen. Let’s go back to early September. On the 5th, Germany brokered a cease-fire between the Ukraine government in Kiev and the rebels in the eastern Donbass region. Washington made it plain it wanted no part of this, preferring to continue open hostilities. And then strange things happened. Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105. Shortly after Kerry’s visit, the Saudis began increasing production, sure enough – by more than 100,000 barrels daily during the rest of September, more apparently to come. Last week they dropped the price of Arab Light by 45 cents a barrel, Bloomberg News just reported. This has proven a market mover, sending prices to $78 a barrel at writing.

Deepwater drilling rigs are sitting idle. Fracking plans are being scaled back. Enormous new projects to squeeze oil out of the tar sands of Canada are being shelved. Maybe low oil prices aren’t so bad for the environment after all. The global price of oil has plummeted 31% in just five months, a steep and surprising drop after a four-year period of prices near or above $100 a barrel. Not long ago a drop of that magnitude would have hit the environmental community like a gut-punch. The lower the price of fossil fuels, the argument went, the less incentive there would be to develop and use cleaner alternatives like batteries or advanced biofuels.

But at around $75 a barrel, the price is high enough to keep investments flowing into alternatives, while giving energy companies less reason to pursue expensive and risky oil fields that also pose the greatest threat to the environment. “Low prices keep the dirty stuff in the ground,” says Ashok Gupta, director of programs at the Natural Resources Defense Council. Economists and environmentalists caution that if the price goes too low, and stays there, consumption could swell and the search for alternatives could stop. They say a good price range for the environment could be somewhere between $60 and $80. As oil demand in developing countries began rising in the last decade, drillers struggled to keep up and prices began to rise. It seemed the world might be running out of oil. Investors poured money into advanced biofuels companies and battery-makers betting high oil prices would make it cheaper to drive on plant waste or electricity.

It hasn’t happened, despite some headway. Even after years of growth, electric cars accounted for just 0.4% of new vehicle sales so far this year, according to Edmunds.com. Biofuels from plant waste account for even a smaller percentage of the nation’s fuel mix. The high prices instead inspired drillers and investors to pursue oil wherever it might be found no matter the expense. They developed projects in environmentally-sensitive areas or using environmentally-destructive methods. They developed technology that has unlocked vast resources once thought out of reach. What was once a shortage now looks to be a surplus. “It was a net negative from a climate perspective,” says Andrew Logan, director of oil and gas programs at the environmental group Ceres. “It locked us into long-term dependence on oil.”

The number of Americans applying for unemployment compensation is near a 15-year low, but a higher percentage than usual still don’t find jobs before their benefits run out. The percentage of people who received unemployment benefits each week until they were no longer eligible stood at a 12-month average of 41.5% in September, according to Labor Department data. In other words, more than four in 10 unemployed Americans still exhaust their benefits before finding a job. Granted, the rate has fallen sharply from a postrecession peak of 55.8% in March 2010 – the highest level since the government began keeping track in 1972. But the rate is still markedly higher vs. a 34.7% low point reached during the 2002-2006 expansion. The percentage who exhaust benefits is also well above the historical average of 35.9%. The U.S. labor market is improving, but a variety of measures such as the exhaustion rate for unemployment benefits shows that a lot more work needs to be done.

According to data compiled by Goldman Sachs, most American workers earn below $20 per hour. Goldman Sachs economists David Mericle and Chris Mischaikow crunched Labor Department data that is used to generate the monthly jobs report that the market closely watches, in particular from the survey of employers. 19% of workers make less than $12.50 per hour, 32% of workers make between $12.50 and $20 per hour, 30% make between $20 and $30 an hour, 14% make between $30 and $45 per hour, and 5% make over $45 an hour. (It’s important to note that this includes all workers covered by the establishment survey, not just hourly workers; to convert annual pay to hourly pay, divide by 2080, for a standard 40-hour week.) The economists also found that, while wage growth has been soft, the fastest growth in income has come to the lowest-paid workers. And they found that the biggest driver to income growth has been rising employment, with help from rising wages and more hours worked.

Confused why despite endless daily propaganda that the US economy is getting better – after all “just look at the record high S&P 500” – fewer and fewer Americans believe the narrative, as the Democrats and Obama found out the very hard way in last week’s midterm elections? Then the following explanation written by the owner of a small business – the segment of the US economy that has historically led every single recovery but this time was left behind – should help answer some questions.

The reason small businesses are disappearing written by a small business owner. I want to start out by saying that i am a 27 year old male with a small business in Sacramento CA. I started this business a few years ago with savings of 15k. With a lot of hard work and determination i have succeeded, but it sure as hell was not easy. I am a long time lurker and have never seen anyone go in depth about what its like to own a small business and the reason why they are disappearing. Without going into to much detail, i own a furniture store so obviously things are different then other businesses but a lot of the things are the same. I wanted to begin with the things that are killing small businesses. Also only my opinion.

Small Business Loans – Although they are not killing small business they sure as hell don’t help anyone. Unless you are opening a unique small business you are not going to get any funding. By unique i mean something along the lines of creating solar panels. According to a recent investigation by the SBA Inspector General (ill post the article if you would like), over 75% of SBA loans went to large businesses. So basically if you want to open a normal business you need a ton of collateral and a miracle to get a loan. Permits and Licensing – In opening my specific business the first year totaled about $2000.00. Advertising – Many small business’s cant afford to take out pages or flyers in the news paper or TV ads so they only have a few choices such as Yelp or the Penny-saver. (Don’t get me started in Yelp). Street Advertising – While this used to be a good portion of how you get business it is now off limits. Code enforcement will not allow you to put anything outside. No balloons, signs, anything with your store name, window paint more than 50%, or any mattresses. Also delivery vehicles can not be closer than 50 feet from the curb. In my case that means behind the building. Board of Equalization – Cant go into to much detail here but they sure as hell aren’t here to help. Health Insurance – Now obviously with the people that have a large work force working full time they will be hit hard by obamacare, but i wanted to give you a perspective on a single person. The cheapest rate for myself and me only, and believe me i have looked around, is $250.00/month. Some might say oh that’s not bad, but let me explain what that covers, NOTHING lol. Basically if something happens to me i have to shell out 6K before insurance gets involved. Also 100 dollar co pay every time i go. The economy – While many know that when the President comes on TV and says the economy is doing great, we all know it is not, some people don’t. Every month more people drop out of the Labor Force and the number of families on food stamps is sky rocketing. So for those of you who don’t know the economy is terrible because of all the top stories of Kim Kardashian and whoever else, lots of people in america are struggling. Merchant Fees – This is for credit card processing machines. The machine itself costs 600.00 plus the percentages on sales and cards. Companies such as BofA charge once a year on top of the regular fees $150.00 to protect you from fraud (which they can’t even stop) and yes its mandatory. Paypal or Square seem to be the best options these days. Fire Department – Yes even the Fire Department wants a piece. Starting last year you must do your own visual inspection and send them a check for 150! Basically if you don’t they will come to your store and give you a million violations for wasting there time.

Italy is a country of entrepreneurs and of vibrant small enterprises. Or was. Now these businesses are dying. Of its 5.3 million companies (as of December 31, 2013), 3.3 million are small, often family-owned outfits, according to Rome-based credit information provider Cerved Group. And another 900,000 are sole proprietorships, or 17% of all companies, a larger percentage than anywhere else in the EU, ahead of France (12%), Spain (10%), and Germany (10%). The remaining 1 million companies are corporations of all sizes. And life in Italy has been exceedingly tough for small outfits. Consumer spending has dropped sharply since the onset of the crisis. Industrial production continued its downward spiral in September and is down 0.5% for the first nine months of 2014 over the same period a year ago. Unemployment is 12.6%, and rising. Youth unemployment is at a catastrophic 43%, up from an already terrible 26% in 2010.

It doesn’t help that the government refuses, and I mean refuses – due to “technical” problems, as a minister explained – to pay its long overdue bills to these already strung-out businesses. It’s a shell game to lower Italy’s overall indebtedness and thus pacify the financial markets and Italy’s masters in Brussels. So this shouldn’t come as a surprise, given that the largest customer in the country, the government, refuses to pay its bills to the members of the private sector which then can’t pay their own bills: in September, non-performing loans held by Italian banks jumped 19.7% from a year ago, according to the Bank of Italy. At the same time, loans to the private sector dropped 2.3%. Economic “growth” has been negative or zero for the last 13 quarters. And this is what Italy’s glorious “recovery” from hell looks like:

My man Beppe. Perhaps still the only man in Europe who makes real sense. He says 2/3 of the Italian Parliament supports his plan for a referendum on the euro. Martin Armstrong suggests the EU may kill him before letting it happen.
See yesterday’s: The Only Man In Europe Who Makes Any Sense.

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase. Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

The eurozone has averted a triple-dip recession but remains stuck in a deep structural slump, with too little momentum to create jobs or to stop a relentless rise in debt ratios. The region eked out growth of 0.2pc in the third quarter, yet Italy’s economy shrank again and has now been in contraction for over three years. Stefano Fassina, the former Italian finance minister, said “Titanic Europe” is heading for a shipwreck without a radical change of course. He warned that contractionary policies are destroying the Italian economy and called on the country’s leaders to “bang their fists of the table”. He said they should threaten an “orderly break-up” of the euro unless policies change. His comments have made waves in Rome since he is a respected figure in the ruling Democratic Party of Matteo Renzi.

While France rebounded by 0.3pc, the jump was due to a rise in inventories and a 0.8pc spike in public spending, mostly on health care. The previous quarter was revised down to minus 0.1pc. “It flatters to deceive,” said Marc Ostwald from Monument Securities. “France was basically horrible. How anybody could celebrate this as a recovery story is beyond me.” “A close reading of details is sobering. Just about all the drivers of growth are near-dead,” said Denis Ferrand, head of the French research institute Coe-Rexecode. Michel Sapin, the French finance minister, said the economy remains “too weak” to make a dent on unemployment. France’s brief rebound in employment has already sputtered out. The economy shed 34,000 jobs in the third quarter. This will not be easy to reverse since Paris has pledged to push through a further €50bn of fiscal cuts over three years to meet EU deficit targets.

Maxime Alimi from Axa said France’s public debt is likely to reach 100pc of GDP by 2017, warning that investor patience may not last. He said bond yields could rise in a “non-linear, abrupt fashion” in the next downturn. Europe is caught in limbo. The data is not weak enough to force a radical change in EMU policy, whether that might be a ‘New Deal’ blitz of investment or full-fledged quantitative easing by the European Central Bank. The risk is that the currency bloc will drift into another year in near deflationary conditions, without any catalyst for real recovery. The US Treasury Secretary, Jacob Lew, warned this week that Europe faces a “lost decade” unless surplus countries such as Germany do more to stimulate demand. “The eurozone is the epicentre of a global Keynes liquidity trap,” said Lena Komileva from G+Economics. “For the markets, the previous consensus of a periphery-led recovery has crumbled.”

One reason not to worry about a Chinese credit bubble is that most of the lenders are inside the country. If there’s a wave of defaults, the logic goes, it won’t affect the global financial system in the same way as the U.S. subprime crisis in 2008.

Judging from data on global bank exposures to China, this argument is rapidly becoming less convincing.

Over the past several years, loans outstanding and other exposure to China have roughly quadrupled to more than $800 billion, according to the Bank for International Settlements, an international organization of central banks (see chart). Add in about $170 billion in derivatives, credit commitments and guarantees, and the total comes to about $1 trillion.

It’s hard to know how much of that money is used to finance the construction of buildings that won’t be filled, excess steelmaking capacity or other misadventures. The BIS does know that the cash is mostly going to Chinese banks, followed by non-bank companies.

Australian banks have increased their exposure to China at the fastest pace over the past five years, though U.K. banks still account for the largest share of lending.

Knowing more about who stands to take the biggest losses would be crucial to managing the global repercussions of a Chinese credit bust. Unfortunately, six years after the financial crisis of 2008, the world’s regulators are still very far from possessing an early-warning system that would allow them to identify – in anything close to real time – concentrations of risk. This weekend’s Group of 20 summit in Brisbane, Australia, would be a good place to try to make some progress in building that system.

Credit growth in China weakened last month, adding to signs that the world’s second-largest economy slowed further this quarter and testing policy makers’ determination to avoid broader stimulus measures. Aggregate financing in October was 662.7 billion yuan ($108 billion), the People’s Bank of China’s said in Beijing yesterday, down from 1.05 trillion yuan in September and lower than the 887.5 billion yuan median estimate in a Bloomberg survey of analysts. Earlier this week, reports showed deceleration in industrial output and fixed-asset investment. The evidence underscores concern that, outside the U.S., the global economic outlook is deteriorating. For Premier Li Keqiang, the question is whether to stick with targeted liquidity injections or embrace nationwide monetary or fiscal easing that reignites the risk of a jump in debt. “The key is not to further expand credit, given the weak credit demand, but to lower funding costs,” said Wang Tao, chief China economist at UBS in Hong Kong. A benchmark interest rate cut “is more urgent.”

The central bank has added liquidity while refraining from broad-based interest rate or reserve requirement ratio cuts. China’s benchmark money-market rate fell for a second week on speculation it will conduct more targeted fund injections. New local-currency loans were 548.3 billion yuan, and M2 (CNMS2YOY) money supply grew 12.6% from a year earlier. New yuan loans, which measure new lending minus loans repaid, compared with economists’ median estimate of 626.4 billion yuan, while the M2 figure compared with the median estimate of 12.9%. “Sluggish domestic demand and risk-aversion among commercial banks dragged credit growth,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand. “Disappointing monetary data suggest overall growth will remain soft in the last quarter.”

This is getting downright stupid. After the minor 8% correction in October, the dip buyers came roaring back and the shorts got sent to the showers still another time. Earlier this morning the S&P 500 was pushing 2050 – or up 12% in less than a month. So the great con game remains in tact. The casinos run by the Fed and other central banks can’t go down for more than a few of days – until one or another central banker hints that more free money is on the way. A few weeks ago it was James Bullard hinting at a QE extension. Next was Mario Draghi pronouncing that the whole ECB is unified behind a plan to expand its already swollen balance sheet by another $1.2 trillion.

And then Haruhiko Kuroda, the certifiable madman running the BOJ, not only announced his 80 trillion yen buying scheme, but soon averred that falling oil prices – a godsend to Japan – were actually a threat to his mindless 2% inflation goal that might necessitate even more money printing. That is, after buying up 100% of the massive Japanese government bond market, the BOJ would not hesitate to monetize ETF’s, stocks, securitized real estate debt and, apparently, sea shells, if necessary. Accordingly, bounteous wealth is seemingly to be had by the three second exercise of clicking “buy” on the SPU (basket of S&P 500 stocks). Indeed, for the past 68 months running, the stock market has blown through every mini-correction, and has been traversing a near parabolic rise.

As a Federal Reserve bank examiner in the mid-1980s, Esther George delivered bad news to a Nebraska banker: she was downgrading overdue loans, putting his firm’s survival on the line. The owner “broke down and said, ‘This was my life’s work and your decisions are taking my bank away from me,’” George, now president of the Federal Reserve Bank of Kansas City, said in an interview. “I was absolutely sympathetic. I knew what it meant for the community.” The man was a victim of the early 1980s speculative bubble that George witnessed firsthand. Today, after the crisis of 2008-9, she sees aggressive lending and lofty asset-price valuations as evidence that financial excesses may again pose a risk to the economy. To forestall another bubble, George, 56, says it’s time for the Fed to start raising interest rates it has kept near zero since 2008. She argues that ultra-cheap credit is no longer needed to support an expansion that’s in its sixth year after the worst recession since the 1930s.

“The Fed took pretty aggressive action because we were in a fairly desperate situation,” George said. “Once we saw the economy turn, we might have removed some of those emergency measures, including zero interest rates.” Her concern with financial stability prompted her to dissent against the Fed’s accommodative policy at seven of eight Fed meetings last year. Now her warnings, along with those of fellow regional Fed bank presidents including Richard Fisher of Dallas and Charles Plosser of Philadelphia, are starting to resonate at a central bank dominated by its Washington-based Board of Governors. St. Louis Fed President James Bullard today called financial imbalances “my biggest worry going forward,” and said the Fed must avoid fanning a boom like the one in housing that could lead to another bust.

“Asset-price bubbles are the elephant in the room for monetary policy in the U.S.,” he told reporters after a speech in St. Louis. Fed officials including Chair Janet Yellen have said they are watching deteriorating leveraged-loan underwriting standards, and the central bank in September created a committee on financial stability under Vice Chairman Stanley Fischer. ‘Esther George has centered attention on the issue,’’ said Lawrence Goodman, a former U.S. Treasury official who is now president of the Center for Financial Stability in New York, an independent research organization. “There are an increasing number of converts at the Fed that financial stability matters.”

Federal Reserve Bank of St. Louis President James Bullard said low inflation in the U.S. economy is no longer enough to justify the current rock bottom setting for short-term interest rates, and he repeated his view that rates should be lifted off their current near zero levels early next year. “Inflation at the current level is not enough to justify remaining at a near-zero policy rate,” Mr. Bullard said in a speech in St. Louis. “Low inflation can justify a policy rate somewhat lower than normal, but not zero.” “Labor markets continue to improve and are approaching or even exceeding normal performance levels,” Mr. Bullard said. “Over the next year, it will become more and more difficult to point to labor market performance as a rationale for a near-zero policy rate.” He told reporters after his formal remarks that his continued expectation of 3% growth and job gains through next year means “that the best time to raise the policy rate will be at the end of the first quarter of 2015.” Mr. Bullard added, “That’s based on a forecast; data could come in differently.”

In his speech, Mr. Bullard took stock of the robust gains seen in the job market, which have come at a time where inflation has run persistently below the Fed’s 2% price rise target. In a speech Thursday, New York Fed President William Dudley said ongoing labor market weakness and inflation that is falling short of the Fed’s goal argue in favor of patience when it comes to raising rates. He, like many other Fed officials, expects short-term rates to be raised from near zero levels some time next year. In his speech Friday, however, Mr. Bullard said that the job market had recovered enough to reach long-term trend levels, and that justifies changing Fed policy. Mr. Bullard expressed some caution about the current level of inflation, which is currently at a tepid 1.4% rise, having persistently fallen short of the Fed’s goals. But he also said that despite some warning signs, he still expects prices to move back toward 2%.

RedHack – a Turkish hacker collective – has hacked the website of the Turkey Electricity Transmission Company, and, as TechWorm reports, claim to have deleted the pending bills of Turkish citizens amounting to Turkish Lira 1.5 trillion (a stunning $668.5 billion). The collective, which has many hacktivism projects against Turkey’s internet censorship laws, posted a video of how they deleted the debt of millions of Turks. As TechWorm reports,

RedHack the Turkey’s number one hacker collective today hacked into the website of the Turkey Electricity Transmission Company website. They then did something which will cheer a lot of Turkish citizens who owe large amounts to the Electricity department. They have claimed that they have deleted the pending bill of Turkish citizens amounting to Turkish Lira 1.5 trillion.

Redhack, are a Turkish hacker collective. They follow the Marxist–Leninist ideology and were founded in 1997. The RedHack has so far hacked several high profile Turkish websites like Council of Higher Education, Turkish police forces, the Turkish Army, Türk Telekom, and the National Intelligence Organization and many other websites.

A decade ago, many of California’s public pension plans had plenty of money to pay for workers’ retirements. All that has changed, according to a far-reaching package of data from the state controller. Taxpayers are now on the hook for billions of dollars more to cover the future retirements of public workers, with the bill widely varying depending on where they live. The City of Los Angeles Fire and Police Pension System, for instance, had more than enough funds in 2003 to cover its estimated future bill for workers’ retirement checks. A decade later, it is short $3 billion. The state’s pension goliath, the California Public Employees’ Retirement System, had $281 billion to cover the benefits promised to 1.3 million workers and retirees in 2013. Yet it needed an additional $57 billion to meet future obligations.

The bill at the state teachers’ pension fund is even higher: It has an estimated shortfall of $70 billion. The new data from a website created by state Controller John Chiang come at a time of growing anger from taxpayers over the skyrocketing cost of public workers’ retirements. Until now, the bill for those government pensions was buried deep in the funds’ financial reports. By making this data available, Chiang is bound to stir debate about how taxpayers can afford to make retirement more comfortable for public workers when private-sector employees’ own financial futures have become less secure. For most non-government workers, fixed monthly pensions are increasingly rare.

“Somebody, who is knowledgeable and interested, is several clicks away from the ugly mess that will define California’s financial future,” said Dan Pellissier, president of California Pension Reform, a Sacramento-area group seeking to stem rising statewide retirement costs. Chiang has assembled reams of data from 130 public pension plans run by the state, cities and other government agencies. It’s now accessible at his website, ByTheNumbers.sco.ca.gov. In nearly eight years as controller, essentially the state’s paymaster, Chiang has made good on a commitment to make government financial records more transparent and accessible.

Big first-year anniversary for anticapitalist, anticonservative, socialist Pope Francis. Fortune magazine ranks him first among the “World’s 50 Greatest Leaders.” Tenure unlimited. Now he’s in an ideological war with U.S. Senate Majority boss Mitch McConnell’s Big Oil backed GOP as well as conservative ideologues. At war in America’s unstable, endlessly fickle, myopic, rigged political arena. At least till 2016. Then another twist. Warren Buffett predicts Hillary Clinton is next, probably till 2024. In a long war. Big picture: Economics trumps the political soap opera. Lurking in the shadows, a new crash. Inevitable.

And like 2000, nobody will hear it coming … hidden under irrational exuberance, dot-com mania, millennium celebrations … followed by a 30-month bear recession … later the 2008 crash … Alan Greenspan, Henry Paulson clueless … two crashes already this century … $10 trillion losses each … next one coming in 2016 election cycle, with echoes of the McCain/Palin loss … yes, a bigger badder bear than 2000 and 2008 … because once again bulls and optimists, traders and leaders fall into denialism … blinded by a new wave of irrational exuberance.

What about the promise of big political changes? House Speaker John Boehner and McConnell talk a good game, but their anxious, conservative GOP base is sitting on the shifting tar sands of Big Oil cash threatened by higher costs, long-term risks. Yes, talk is cheap, but once partisan conflicts blow up, climate disasters will bury the GOP’s aggressive energy agenda, support will fade. Yes, Pope Francis is celebrating his one-year anniversary since laying down his anticapitalism manifesto for his army of 1.2 billion Catholics worldwide. He’s also been removing conservative cardinals and bishops from leadership roles. He’s hell-bent on changing the world fast. And his mandate is unwavering and unequivocal. He’s drawing clear moral and political battle lines against repressive capitalism, excessive consumerism, rigid conservatism.

Listen: “Inequality is the root of social ills … as long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems.” Yes, it sure sounds like a declaration of war: The anticapitalist Pope Francis versus America’s self-destructive amoral capitalism. Bet on Mitch? Pope Francis’s target is clear: economic inequality is the world’s No. 1 problem. Capitalism is at the center of all problems of inequality. And he speaks with a powerful moral authority — something totally missing from American political leaders who are ideologically guided by atheist Ayn Rand, patron saint of the GOP’s capitalism agenda in this moral war. Without moral grounding, the GOP is no match for Francis’ vision, his principled mandate, his long-game strategy to raise the world’s billions out of poverty, to eliminate inequality, to attack the myopic capitalism driving today’s economy, markets and political system.

“.. much of Wall Street’s profit engine isn’t sustainable. For most of the last two years, too-big-to-fail bank profits haven’t been driven by banking, they’ve been driven by sharp increases in investment banking”.

There’s been much in the way of speculation about how the Republican sweep in Tuesday’s midterms may impact Wall Street — the industry. Some believe a shift in control will help. Others are less sure. Both may miss a bigger point: big financial firms are on a cyclical high that isn’t built to last. David Reilly and John Carney argue that big banks are unlikely to get big breaks from Congress even though Republicans have tended to be softer on regulation. Writing for the Wall Street Journal’s “Heard on the Street” section, Reilly and Carney note “reviving the debate over financial reform could also resurrect the question of what to do about too-big-to-fail banks and renew calls for them to be broken up.” On the flip side, MarketWatch’s Philip van Doorn writes that many banks may be able to lift dividends if the new Republican leadership in the U.S. Senate follows through on promises to ease restrictions on capital requirements. Both camps make strong arguments. And they’re not really in opposition.

Tuesday’s victory by Republicans opens the door for eased banking rules, but it comes with risk of a political backlash. Investors may be better served by looking at some trends in the industry to gauge just how profitable the big six — Bank of America, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley and Wells Fargo may perform in the future. On the plus side, the stream of positive economic data, including Friday’s jobs report, is likely to lead the Federal Reserve to keep its distance from quantitative easing and enter a new phase of rate increases that, in turn, would boost interest rates paid on loans and other credit instruments. This has been a big drag on bank industry profits since the financial crisis and recession. That’s the good news. The potential bad news is that much of Wall Street’s profit engine isn’t sustainable. For most of the last two years, too-big-to-fail bank profits haven’t been driven by banking, they’ve been driven by sharp increases in investment banking: underwriting equity and debt offerings and advising on mergers and acquisitions.

Former Congressman Ron Paul told RT in the midst of Tuesday’s midterm elections that the “monopoly” system run by the leaders of the two main parties is all too evident as Americans go to the polls this Election Day. “This whole idea that a good candidate that’s rating well in the polls can’t get in the debate, that’s where the corruption really is,” Paul, the 79-year-old former House of Representatives lawmaker for Texas, told RT during Tuesday’s special midterm elections coverage. “It’s a monopoly…and they don’t even allow a second option,” he said. “If a third party person gets anywhere along, they are going to do everything they can to stop that from happening,” the retired congressman continued.

Paul, a longtime Republican, has been critical of the two-party dichotomy that dominates American politics for decades, and once ran as the Libertarian Party’s nominee for president of the United States. While third-party candidates continue to vie against the left and right establishment, however, Paul warned RT that even the two-party system as Americans know it is in danger. “What do they do with our young people? They send them all around the world, getting involved in wars and telling them they have to have democratic elections,” he told RT. “But here at home, we don’t have true Democracy. We have a monopoly of ideas that is controlled by the leaders of two parties. And they call it two parties, but it’s really one philosophy.”

All hope isn’t lost, however; according to Paul, American politics can still be changed if individuals intent on third-party ideas introduce their ethos to the current establishment. Americans can “fight to get rid of the monopoly of Republicans and Democrats,” Paul said, or “try to influence people with ideas and infiltrate both political parties.” With respect to the midterm elections, though, Paul told RT that he’s uncertain what policies will prevail this year — excluding, of course, an obvious win for the status quo. “I think the status quo is pretty strong right now, and I imagine that the status quo is going to win the election tonight,” he said Tuesday afternoon.

The U.S. is becoming an engine of job creation once again, but it’s more like a four-cylinder instead of an eight-cylinder one. The 214,000 gain in new jobs in October marked the ninth straight month in which net hiring topped 200,000. The last time that happened was in 1994. Yet only about 40% of the new jobs created in October were in fields that pay above the average hourly U.S. wage of $24.57. That’s down from 60% in September. The mediocre nature of many new jobs and slow wage growth are perhaps the biggest obstacle to a full-blown economic recovery. The biggest increase in hiring in October occurred at restaurants and bars, which added a seasonally adjusted 42,000 positions. Retailers hired 27,000 workers. Temps accounted for 15,000 jobs. Transport — think package deliverers — took on 13,000 new employees. All these industries pay less than the national average.

Some of the new jobs are also unlikely to last long. Restaurants and retailers, for example, tend to beef up staff ahead of the holidays and slim down after New Year’s. Temp jobs, on the other hand, have often been converted into full-time positions. Companies use temps sometimes as a trial for a full-time job. Whatever the case, it’s not a good idea to give too much weight to the composition of hiring in any one month. Some 60% of the 256,000 jobs created in September, for instance, were in fields that pay above the average U.S. wage. That’s higher than normal. There’s also been a pronounced shift in 2014 toward higher paying jobs vs. the prior year. A MarketWatch analysis shows that roughly 58% of the new jobs created this year pay above the average hourly wage, compared to less than 50% in 2013. Still, both the composition of jobs and the trend in hourly pay bear close watching over the next few months. Both have to improve to get the U.S. economy fully back on track more than five years after the recovery started.

“The unemployment rate is no longer a sufficient statistic.” An accurate gauge of the market, he says, must include people who’ve given up looking for work and those working in part-time or low-paying jobs because they can’t find anything else”.

Americans are overdue for a fatter paycheck: Average earnings haven’t risen in more than six years. The labor market is finally recovering—the unemployment rate is down to 5.9% from 8.2% in July 2012—and that usually pushes up wages. But it’s not clear that job growth will translate into pay increases in 2015. In an August speech, Federal Reserve Chair Janet Yellen speculated that “pent-up wage deflation” might have held wages down during the recovery. What does that mean? “In a downturn, employers may need to cut wages, but they are reluctant to do so,” says San Francisco Fed economist Mary Daly. They prefer laying people off, which they believe tends to have less impact on workforce morale, she says. The result is that when the economy recovers, employers are slower to raise pay than if they had imposed cuts during the slump.

Daly says wages were slow to increase after the past three recessions, too. She estimates that unemployment will have to fall to 5.2% before wages begin rising. Even a drop to that level might not be low enough to spur gains. Dartmouth economist Daniel Blanchflower says the labor market is in worse shape than the unemployment rate suggests. “Something changed in 2010,” he says. “The unemployment rate is no longer a sufficient statistic.” An accurate gauge of the market, he says, must include people who’ve given up looking for work and those working in part-time or low-paying jobs because they can’t find anything else. Measures that include discouraged workers, such as the labor force participation rate, have worsened since 2008. Blanchflower says pay won’t increase until the slack is absorbed, and he can’t predict when that might happen.

Today’s unusually high long-term unemployment could keep wages low for years, according to Till von Wachter, an economist at the University of California at Los Angeles. People who’ve been out of work for six months or more “may have seen their skills deteriorate,” he says, “and some job losers found their previous occupation is no longer available and skills not in demand. This happens in every recession, but this last one was worse because there was more job loss.” He estimates that each additional month you’re unemployed after the first month lowers your next job’s pay by almost 1%.

Following last month’s total collapse in the participation rate, dropping to 36 year lows, this month there was a modest improvement in the composition of the labor force, with the Household Survey suggesting the ranks of the Employed rose by 683K people, while the Unemployed actually declined by 267K, leading to a drop of the people not in the labor force to 92.378 million from 92.584 million. In other words, a little over 101 million Americans are unemployed or out of the labor force. Still, if only looking at this metric, the Fed would likely have no choice but to proceed with a rate hike in the first half of 2015.

The shale-oil drilling boom in the U.S. is showing early signs of cracking. Rigs targeting oil sank by 14 to 1,568 this week, the lowest since Aug. 22, Baker Hughes said yesterday. The Eagle Ford shale formation in south Texas lost the most, dropping nine to 197. The nation’s oil rig count is down from a peak of 1,609 on Oct. 10. Drillers are slowing down as crude prices tumbled 24% in the past four months. Transocean said yesterday that its earnings would take a hit by a drop in fees and demand for its rigs. The slide threatens to curb a production boom in U.S. shale formations that has helped bring prices at the pump below $3 a gallon for the first time since 2010 and shrink the nation’s dependence on foreign oil imports. “We are officially seeing the slowdown in oil drilling,” James Williams, president of energy consulting company WTRG Economics, said yesterday. “There’s no doubt about it now. We’re already down 49 rigs since the peak in October. It’ll have fallen by more than 100 rigs by the end of year.”

Orices are down 17% in the past year. Executives at several large U.S. shale producers, including Chesapeake Energy and EOG Resources, have vowed to maintain or even raise production as they reported earnings this week. They say their success in bringing down costs means they can make money even if prices slump further. The oil rig count will drop to 1,325 by the middle of next year amid lower prices, Genscape, an energy data company said in a report. Drillers from Apache to Continental Resources have said this week that they’re laying down rigs in some oil plays. Transocean, owner of the biggest fleet of deep-water drilling rigs, is delaying the release of its Q3 results after saying its earnings would be hit by $2.76 billion in charges from a decline in the value of its contracts drilling business and a drop in rig-use fees. Transocean’s competitors will probably have to take similar measures as “this is going to be an industry wide phenomenon,” Goldman Sachs said in a research note yesterday.

Transocean, owner of the biggest fleet of deep-water drilling rigs, is feeling the effect of an industrywide glut in the expensive vessels just as crude-oil prices tumble. The company will delay posting third-quarter results after saying earnings would be hit by $2.76 billion in charges from a decline in the value of its contracts-drilling business and a drop in rig-use fees. Shares in the Vernier, Switzerland-based company, which pushed back the release of its earnings report to Monday instead of today, fell 0.7% to $29.71 at the close in New York. Oil’s decline to a four-year low in recent months has caused companies to consider spending cuts, which would further reduce demand for rigs and the rates Transocean can charge to lease them to explorers. The drop in prices comes after rig contractors responded to rising demand during the past few years with the biggest batch of construction orders for rigs since the advent of deep-water drilling in the 1970s.

“Ouch,” analysts from Tudor Pickering Holt & Co. wrote in a note to investors today. The announcement “reflects the reality of this oversupplied floater rig market globally.” Other rig owners may also face writedowns, Waqar Syed, an analyst at Goldman Sachs Group Inc., wrote today in a note to investors. Among those that may be affected are Diamond Offshore Drilling, Noble, Ensco, Rowan and Atwood Oceanics, he wrote. “This is going to be an industrywide phenomenon for the next few years,” Syed wrote. “Companies that have spent substantial amounts in the past 10-15 years in upgrading their 1970-1980 vintage rigs may face some writedowns.” Noble regularly does impairment tests on its assets, said John Breed, a company spokesman. “With the current figuration of the Noble fleet, it seems like a major writedown wouldn’t be something we would be looking at.”

Consumer borrowing increased at a faster rate in September as American households took out loans for cars and education. The $15.9 billion increase in credit followed a revised $14 billion advance in August, the Federal Reserve reported today in Washington. Non-revolving loans, including borrowing for motor vehicles and college tuition, rose $14.5 billion in September. Gains in the labor market and stock portfolios, the lowest gasoline prices in four years, and cheap borrowing costs are giving Americans the confidence to borrow. Faster wage growth would provide a bigger boost for households wary of taking on more debt. The September gain in consumer borrowing was in line with the $16 billion median forecast of 34 economists in a Bloomberg survey. Estimates ranged from increases of $12 billion to $22 billion.

The report doesn’t track mortgages, home-equity lines of credit and other debt secured by real estate. Revolving credit, which includes credit-card balances, climbed $1.4 billion after a $201 million decline in August, today’s Fed figures showed. The September gain in non-revolving credit followed a $14.2 billion increase in the prior month. Today’s report showed that student loans in the third quarter increased to $1.3 trillion from $1.27 trillion in the prior three months. Borrowing for the purchase of motor vehicles climbed to $940.9 billion last quarter from $918.7 billion from April through June. Auto sales cooled in September to a 16.3 million annualized rate, capping the best quarter for the industry in more than eight years, according to data from Ward’s Automotive Group.

The top executives of Fannie Mae and Freddie Mac, brought in to be stewards until the government figures out how to shut them down, are increasingly sounding like they think the two companies should continue to exist. Timothy J. Mayopoulos of Fannie Mae and Donald Layton of Freddie Mac today both pointed to steps they’re taking to boost stability and competition in the mortgage market, while stopping short of urging lawmakers to drop plans for an overhaul that would put them out of business. “People should recognize that there’s a lot of reform that’s already underway at Fannie Mae,” Mayopoulos said in a telephone interview. “There have been a lot of proposals for substantial changes to housing finance. People need to make sure whatever is put in place is practical and it can work.”

Fannie Mae and Freddie Mac, which were taken into U.S. conservatorship in 2008 amid soaring losses on subprime loans, reported third-quarter financial results today that will see them send a combined $6.8 billion to the Treasury before the end of the year. The payments stem from terms of their $187.5 billion bailout requiring them to turn over all profits. With the latest installments, Fannie Mae, which had a third-quarter profit of $3.9 billion, and Freddie Mac, which reported $2.8 billion, will have sent taxpayers $38 billion more than they took in the aid. The payments are considered to be a return on the U.S. investment and not a repayment, which means there’s no legal avenue for them to exit conservatorship. Changing the bailout terms is one area where lawmakers could help, Mayopoulos said. “That’s something that Congress will ultimately need to address if this company’s going to continue to operate,” he said. “It’s very difficult without capital.”

Annual growth in China’s exports and imports slowed in October, data showed on Saturday, reinforcing signs of fragility in the world’s second-largest economy that could prompt policymakers to roll out more stimulus measures. Exports have been the lone bright spot in the last few months, perhaps helping to offset soft domestic demand, but there are doubts about the accuracy of the official numbers amid signs of a resurgence of speculative currency flows through inflated trade receipts. Exports rose 11.6% in October from a year earlier, slowing from a 15.3% jump in September, the General Administration of Customs said. The figure was slightly above market expectations in a Reuters poll of a 10.6% rise.

A decline in China’s leading index on exports in October pointed to weaker export growth in the next two to three months, the administration said. “The economy still faces relatively big downward pressure as exports face uncertainties while weak imports indicate sluggish domestic demand,” said Nie Wen, an economist at Hwabao Trust in Shanghai. “The central bank may continue to ease policy in a targeted way.” Imports rose an annual 4.6% in October, pulling back from a 7% rise in September, and were weaker than expected. That left the country with a trade surplus of $45.4 billion for the month, which was near record highs.

Mohamed El-Erian, the chief economic adviser to Allianz, has warned that policymakers don’t understand how much of a risk a strong dollar and volatile currency markets could pose to market “soundness” and the economic recovery. The former Pimco chief executive and co-chief investment officer said volatility had returned to currency markets as central banks diverge in their response to lackluster growth and deflation. This could result in “excessive movements” in currencies becoming a risk themselves, he said. “This (the strong dollar) is a key issue and I don’t think this is an issue that the markets or the policy makers have understood enough as yet—we have gone from a world where there was relative harmony in what central banks were doing—to a world where there was diverging direction and for good reasons: the economies are doing different things,” he told CNBC on Friday.

“If the other parts of the policy apparatus do not respond, then the only market that accommodates these divergent trends is the currency markets. I could tell you that, as someone who participates in the markets, this poses a threat to volatility and market soundness as a whole and the sorts of excessive movements that may result in currencies becoming a risk themselves to economic recovery,” he added. El-Erian’s comments come as the the Russian rouble tumbled to new lows on Friday before bouncing back. The rouble hit its weakest-ever level against the U.S. dollar early on Friday, sliding to 48.6, before recovering to trade at 46.2 within a few hours – 1.3% higher on the day.

Tax experts responsible for the G20-led shakeup of international tax rules are discussing radical measures to bar global corporations from using internal loans, that bear no relation to their borrowing needs, in order to avoid tax. If adopted, the move could wipe out vast swaths of the financial industry at a stroke in countries such as Switzerland and Luxembourg, which have for years courted the intra-group financing offices of multinational firms by operating friendly local tax regimes. Raffaele Russo, one of the OECD tax experts leading the reform programme that has come in response to increasingly aggressive tax planning by multinationals, told the Guardian that if the proposals were backed, “this will be the end of [tax] base erosion and profit shifting using intra-group financing”. Measures to tackle multinationals taking large tax deductions for interest payments on loans within the same group are hinted at in a report published in September.

It said: “A formulary type of approach which ties the deductible interest payments to external debt payments may lead to results that better reflect the business reality of multinational … groups.” While other measures are also on the table, pressure to take radical steps to stamp out intra-group loans contrived for tax avoidance has grown this week after revelations about tax agreements rubber-stamped by the Luxembourg tax office. Luxembourg finance minister Pierre Gramegna used a public session during a meeting of European finance ministers in Brussels to deliver a statement in reaction to this week’s revelations about tax agreements with multinationals. “My country [has] come under scrutiny in the latest days. The rulings of Luxembourg are being done according to the national laws of Luxembourg and also according to international conventions. What is being done is totally legal.” He acknowledged rulings and weak tax treaties had led to “situations where companies are paying no taxes or very little taxes [which] is obviously not a good result”.

Welcome to Luxembourg, where accountants outnumber the police by four to one – and people enjoy some of the highest living standards in the world. “Conquer the world from your Luxembourg headquarters,” is the title of one government-sponsored marketing brochure promoting the Grand Duchy and its “business-friendly legal and fiscal framework”. “Political decision-makers are very accessible to companies,” it promises. The big four accountancy firms tend to agree, if a 2009 presentation by PricewaterhouseCoopers is anything to go by: the authorities are “flexible and welcoming”, “easily contactable” and offer “a readiness for dialogue and quick decision-making” it said in the document, part of a trove of documents obtained by the International Consortium of Investigative Journalists and shared with the Guardian. The big four are huge global enterprises that employ 750,000 people in total and have combined earnings of $117bn (£74bn), according to the latest figures – making them bigger than the economy of Angola.

Their footprint is especially large in Luxembourg, where they employ 6,200 people – among a population of 550,000. The Grand Duchy’s economy has come to be dominated by high finance since the decline of its steel factories. Today, financial services are Luxembourg’s biggest earner, accounting for more than a third of the national income. Almost half the workforce are foreigners, with 44% of employees commuting in daily from France, Germany and Belgium. Despite the financial crisis, accountancy has been booming. Deloitte has increased its Luxembourg staff by 142% in less than a decade to 1,700. PwC is comfortably ahead of Deloitte, its nearest rival. The biggest of the big four, which once described itself as “an ambassador of Luxembourg abroad”, it employs more people in Luxembourg than the country’s police force: it has 2,300 staff, while the gendarmerie has 1,600 officers. That makes it the country’s ninth largest employer, behind steelmaker ArcelorMittal and French bank BNP Paribas.

She tried to stay quiet, she really did. But after eight years of keeping a heavy secret, the day came when Alayne Fleischmann couldn’t take it anymore. “It was like watching an old lady get mugged on the street,” she says. “I thought, ‘I can’t sit by any longer.'” Fleischmann is a tall, thin, quick-witted securities lawyer in her late thirties, with long blond hair, pale-blue eyes and an infectious sense of humor that has survived some very tough times. She’s had to struggle to find work despite some striking skills and qualifications, a common symptom of a not-so-common condition called being a whistle-blower. Fleischmann is the central witness in one of the biggest cases of white-collar crime in American history, possessing secrets that JPMorgan Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion as regularly reported – more on that later) to keep the public from hearing.

Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as “massive criminal securities fraud” in the bank’s mortgage operations. Thanks to a confidentiality agreement, she’s kept her mouth shut since then. “My closest family and friends don’t know what I’ve been living with,” she says. “Even my brother will only find out for the first time when he sees this interview.” Six years after the crisis that cratered the global economy, it’s not exactly news that the country’s biggest banks stole on a grand scale. That’s why the more important part of Fleischmann’s story is in the pains Chase and the Justice Department took to silence her.

She was blocked at every turn: by asleep-on-the-job regulators like the Securities and Exchange Commission, by a court system that allowed Chase to use its billions to bury her evidence, and, finally, by officials like outgoing Attorney General Eric Holder, the chief architect of the crazily elaborate government policy of surrender, secrecy and cover-up. “Every time I had a chance to talk, something always got in the way,” Fleischmann says. This past year she watched as Holder’s Justice Department struck a series of historic settlement deals with Chase, Citigroup and Bank of America. The root bargain in these deals was cash for secrecy. The banks paid big fines, without trials or even judges – only secret negotiations that typically ended with the public shown nothing but vague, quasi-official papers called “statements of facts,” which were conveniently devoid of anything like actual facts.

Moscow and Beijing have agreed many of the aspects of a second gas pipeline to China, the so-called western route. It’s in additional to the eastern route which has already broken ground after a $400 billion deal was clinched in May. “We have reached an understanding in principle concerning the opening of the western route,” the Russian President told media ahead of his visit on November 9-11 to the Asia Pacific Economic Conference (APEC). “We have already agreed on many technical and commercial aspects of this project laying a good basis for reaching final arrangements,” the Russian President added.

In May, China and Russia signed a $400 billion deal to construct the Power of Siberia pipeline, which will annually deliver 38 billion cubic meters (bcm) of gas to China. The Power of Siberia, the eastern route, will connect Russia’s Kovykta and Chaynda fields with China, where recoverable resources are estimated at about 3 trillion cubic meters. The opening of the western route, the Altai, would link Western China and Russia and supply an additional 30 bcm of gas, nearly doubling the gas deal reached in May. When the Altai route is complete China will become Russia’s biggest gas customer. The ability to supply China with 68 bcm of gas annually surpasses the 40 bcm it supplies Germany each year.

In a former market hall in Barcelona, Catalans are busy championing a historic defeat. A museum and cultural center built around the 300-year-old ruins of the city aims to educate visitors about the 1714 siege during the War of Spanish Succession. The battle lasted more than a year and destroyed the old neighborhood amid “epic and heroic resistance,” according to the center’s pamphlet. For Catalan nationalists, the defeat marks the end of their region’s freedom and the beginning of their domination by Madrid. For others, there’s a catch: the version of events on display at the museum, funded by the regional government that’s been pushing for an independence referendum, is unrecognizable to most historians outside Catalonia. “It’s science fiction,” said Alejandro Quiroga, a lecturer in Spanish history at Newcastle University in England who comes from Madrid. “The distortions are tremendous. That’s part of the process of nation building.”

As they develop a narrative around national identity, arguments over the interpretation of history have for decades dogged the Catalan nationalists. Barcelona’s leadership gained control of education under the constitutional settlement that followed the death in 1975 of General Francisco Franco, who had banned the use of the Catalan language. The movement has transformed into a full-blown campaign to leave Spain over the past three years. This weekend, activists will hold an unofficial independence vote in defiance of a Spanish court ruling and the Madrid government. “It fits in with my nationalistic feelings,” said Eugenio Suarez, 61, an industrial engineer who visited the museum on Oct. 14, a little over a year after it first opened. “I am a nationalist for other reasons, so I come here to remember what Barcelona and Catalonia was and still is.” In the northeast of the country, Catalonia is the largest economic region, where output per capita is 17% above the European Union average compared with 5% below for Spain as a whole.

The risk of political upheaval temporarily halted a rally in Spanish bonds last month. Unionists and some historians say that successive regional governments have contributed to building a Catalan majority by promoting a partial, at times false, version of the region’s history through its schools and cultural institutions. In Spanish history books, Felipe V’s troops overran Barcelona at the end of a 14-month siege, bringing an end to the war. The way the Catalan nationalists tell it, that defeat marks the end of a golden age for Catalonia. The attack “led to the capitulation of Barcelona and the loss of Catalonia’s freedoms,” says the leaflet handed out to visitors at the center in the El Born district. The museum shows “the vibrant and dynamic Barcelona of 1700,” while the defeat “is a symbol of the historic fight of the citizens to defend the constitutions and institutions of the country.”

As Greece waits to hear whether it will be allowed to withdraw early from a bailout program that saved the country from insolvency, its minister of public order said a recent rise in Greek interest rates is a warning that the country can’t undo reforms. Minister Vassilis Kikilias, on a visit to New York and Washington, D.C., said investors’ negative reaction toward Greece in recent weeks wasn’t due only to its attempt to leave the bailout ahead of schedule, but also about “global” events in the markets. He did add, however, that it was also a warning for Greek politicians to “stop promising people things that we cannot deliver. Then things are going to go wrong.”

Greek stocks and government bonds sold off when Greek Prime Minister Antonis Samaras announced he would try to leave the multibillion-dollar bailout program early. The European Commission took up consideration of the proposal this week. But yields also rose on fears there will be snap elections in the spring and the leader of the radical left, Alexis Tsipras, might win the election. He is currently leading in the polls. Kikilias said he hopes and believes there won’t be an election next year. A goal of the government, he said, is to change the structure of the Greek government in order to have more consistent elections cycles.

Women, take today off! In fact, take the rest of the year off! Danish unions representing more than 1.1 million private and public employees, at least half the country’s workforce, are urging women members to do just that – and only half in jest – to protest a 17% pay gap to men. “It’s a way to remove the gender pay gap in a split second,” Lise Johansen, head of the campaign for the Danish Confederation of Trade Unions, said in a telephone interview. “Go to a tropical island for the rest of the year!” While “everyone knows it’s a joke,” the protest, now in its fifth year, highlights the challenges Denmark faces even as it ranks among the countries with the smallest pay disparities, Johansen said.

Scandinavian countries have been the most successful in closing the gender gap, the World Economic Forum said in a report last week. Denmark ranked number five in the study of 142 countries, trailing Iceland, Finland, Norway – where the government has recently made military service mandatory for women – and Sweden. Yet in terms of wage equality for similar work, Denmark ranked 38, according to the report.

French parliament will hold hearings this month on the threat posed by drones to nuclear installations even as the mystery of who is behind a series of flights over more than a dozen sites remains unsolved. Reactor builder Areva confirmed today a drone had been spotted over one of its sites while two more plants operated by Electricite de France (EDF) were visited by the remote-controlled flying objects this week. Over a little more than a month, drones have been seen at 14 of EDF’s 19 plants, according to a person familiar with the events. The flights are “irresponsible,” deputy Jean-Yves Le Deaut, a member of the Socialist Party, said by telephone. “It’s giving people ideas and suggests parallels with cyber-attacks.”

The lawmaker will head a one-day public hearing Nov. 24 into whether drone flights can be dangerous to atomic installations. Organized by the parliament’s office for evaluation of scientific and technological choices, OPECST, it will include representatives from the country’s nuclear and drone industries as well as security experts, he said. “Nuclear isn’t for staging a video game,” Le Deaut said. “It’s urgent to stop this mess.” The flights haven’t so far inflicted damage nor has anyone publicly claimed responsibility. While Interior Minister Bernard Cazeneuve has said an inquiry is underway, the flights have continued for more than a month, the latest at the Areva installation last night. Two men are being investigated for flying an aircraft in a protected zone near EDF’s Belleville-sur-Loire nuclear plant, AFP reported, citing Bourges prosecutor Vincent Bonnefoy. The incident isn’t related to the flights at other nuclear sites, he was quoted as saying.